Effective cash flow management is crucial for builders.
As your business grows, and you find yourself juggling lots of different projects at once, it can be a nightmare for managing cash flow.
That’s why house-and-land packages—where the buyer funds the land and construction—are often the preferred style of contract. And sure, they’re great if everything goes according to plan, and you have an end-buyer locked in to settle on the land.
But they’re not without risk. What if your buyer can’t settle the land, or you can’t find a buyer and need to settle the land yourself? Buyers can also be frustrating to work with.
Most prospective homebuyers also can’t afford to fund a new build through construction
By restricting yourself to house and land packages, you lock yourself out of a significant part of the market.
Take buyers with an existing mortgage for example. Getting approval on a second (construction) loan is often extremely difficult, meaning—in order to be able to afford a house and land package—they’ll need to sell their existing home in advance.
Banks also won’t finance older buyers or retirees to build a home, even if their existing home is mortgage-free.
So, then, what’s the alternative?
A turnkey build is where you finance the build yourself and sell it as a completed house.
Traditionally, the challenge with turnkeys has been that they consume working capital that could be better used elsewhere. The more projects you have on the go, the more capital you have tied up.
From the buyer’s perspective, though, there are two major benefits:
- The structure of the payments (10% deposit, with the rest on completion) makes it much easier to get a loan approval.
- Buyers with an existing mortgage don’t have to carry two loans at once. They can list their current property for sale before completion, with an extended settlement date, and have the transaction done and dusted by the time their new home is ready to go.
That means that, with turnkeys, your potential pool of buyers (and therefore demand) is much greater—giving you more scope for business growth.
The good news is that new financing solutions are now available which remove much of the cash flow risk from the turnkey equation
Squirrel’s new turnkey home construction product requires a 20% deposit on the land, for which we’ll fund the rest of the land settlement and finance 100% of the construction.
We can even fund the 20% land deposit ourselves using an equity loan, provided it’s a good project and for select high-quality builders.
Keen to get started on your next turnkey project? Check out our unique funding solutions or book a chat with one of our development lending specialists.
