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Checklist For Selecting Development Loans
When looking at lending to property development opportunities on the various platforms that cater for this type of lending there are many things to consider.
(To find those opportunities, read about the roughly two dozen Property Peer-to-Peer Lending Websites.)
I think this is probably the most complicated borrower to lend to. Get it wrong and losses can be high.
I would suggest that potential deals are vetted against the following questions:
- Has the developer got a decent track record of successful development?
- The profit that the developer expects to make.
- How do the total expected costs of the development compare to the expected profit on the sale? Is there a decent margin for error?
- What is the developer's credit rating? (You may need to see both the rating of the individual and the limited company.)
- How much has the developer invested? How much skin in the game?
- Are the plans sensible? Have they been signed off by a decent quantity surveyor?
- Have plans been approved by the local planning authority?
- Has the developer got sufficient contingency to cater for unseen costs during development?
- If you can ascertain it, are the finished sale prices sensible? Is the market there for the finished property?
- Is the site free of any serious issues, such as chemical contamination?
- How complicated are the financing plans?
- How dependent is the project on the borrower? Is he/she the key man, which may mean the project will struggle if they became unavailable?
- Is the borrower receiving payments in tranches to manage exposure, instead of receiving the entire loan in one go?
- Where has the project got to already: foundations finished, awaiting planning approval, roof on, etc?
- Who tracks the development?
- Particularly where not all the information is shared with you, look at the track record of the P2P lending platform itself.
Hopefully positive answers to these questions can help you find good opportunities across the platforms.