How you approach funding can transform the outcome of every property project. From chasing headline rates to relying on familiar lenders, this blog explores the small habits that have a significant impact on your capital, your deal flow and your long-term returns. 

What Type of Borrower Are You?

Property developers and investors are a creative and visionary bunch with an ability to reimagine all kinds of derelict spaces and buildings. But whilst they might know the rental yields of every commercial space in town, or how many tonnes of bricks a 3m steel-beam can support, when it comes to funding a property project many lack any real knowledge.

At Brickflow, we spend a lot of time speaking to borrowers, brokers and lenders, so we know the kind of self-inflicted blinkers developers and investors often have when they search for property finance. 

Most don’t realise that the smallest change in their habits can save tens to hundreds of thousands of pounds. So when it comes to property projects, what type of borrower are you?

Take our quick quiz to find out, then read more below.

1. The Rate Chaser

The rate chaser thinks that if they secure the lowest interest rate then they’ve secured the best deal. They look at the interest rate above all else, search solely on this basis and immediately dismiss lenders that might have a marginally higher rate.

Lenders know all about rate chasing. Hence they entice borrowers with their low headline rates – but they typically have lower lending limits to match, and might only offer a maximum of 55%-60% LTV (loan to value). Meaning borrowers have to cough up a huge deposit to secure the loan.

Injecting all of your capital into one project to save a few thousand on interest charges might seem logical, until you factor in opportunity costs. With no capital left, you can’t act on new opportunities, can’t scale your pipeline and can’t increase your return on investment.

We call this the ‘cheap debt paradox’.

A rate chaser came to Brickflow in despair as he funnelled more and more of his own capital into his project, and started to think there must be a better way to finance this:

2. The Loyal Friend

Loyalty is admirable – except when it comes to choosing a development finance lender.

Everyone enjoys the recognition of being a repeat customer somewhere, whether it’s the pub landlord pulling your usual before you ask, the hotel upgrading you because you've stayed before or the mechanic squeezing you in for a quick car check. However trifling, there can be benefits to being a repeat customer.

But arranging finance through the same lender has literally zero benefits and can cost you hundreds of thousands of pounds. So even if it seems convenient, and you avoid repeating the same information because they kept your details on file, it pays, in colossal amounts, to shop around.

Don’t pay the ‘loyalty tax’ on your next property project.

A lender is not your friend. Why? Because a friend would look after your best interests. A friend would tell you that there is another lender offering the same loan at a cheaper price, or a much bigger loan at the same price. A lender doesn't do that. A broker should do that, but they aren't always armed with all the right information. A broker using Brickflow will quickly and easily be able to find the best lending solution for you.

Many loyal friends wished they'd learned this earlier in their career. The Brickflow software shows borrowers how much they can accelerate their business plans by securing a better deal. Unsurprisingly, their lender loyalty goes out the window.

Here's just one example (of many);

3. The one-eyed-man

The one-eyed man, with laser focus on shaving off 10p here, and £3 there on development costs. Their project spreadsheet accounts not just for the bags of sand, but practically the grains within them, pouring over the minutest costs of the project. They push and push their main contractor to source alternative suppliers/materials/transport to somehow reduce pricing. By the time they get on site together, it’s not safe for either of them to be in the vicinity of each other with so many hammers lying around.

Then, when it comes to sourcing finance for the build, any loan will do. They’re not alone, unfortunately - here’s the typical journey of the one-eyed-man, which is almost every property developer at some point:

4. The student/analyst

And finally, the savviest of the four borrower types, several projects ahead of the rest and double/triple/quadruple their return on capital employed (ROCE) by comparison.

The analyst looks at every option, has no lender bias, understands that low interest rates can be a false economy and would never drill their main contractor on their development projects to save minuscule amounts when they can make significant savings in their funding package. The analyst knows beyond the big bank names and looks for funding from specialist lenders who have less strict lending criteria, more flexibility and typically lend higher loan to value/GDV ratios. So rather than ploughing every penny of equity into one project, the analyst can spread it over multiple sites, enabling them to scale their business faster.

Here’s how things go for one analyst who now uses Brickflow for every project:

Every property developer and investor should aim to be the analyst and our mission at Brickflow is to make that happen. Our software can search over 160 specialist finance lenders from the breadth of the market in seconds. We are the first platform in the UK for comparing bridging loans, commercial mortgages and development finance loans, making the market more accessible for everyone.

BE THE ANALYST

Compare loans from 160+ lenders & secure a DIP today.

COMPARE LOANS

Ditch the bad habits, ditch manual loan sourcing

Every single lender will lend you a different amount of money and at a different price for each site/property – the difference between the best lender and any lender will be tens to hundreds of thousands of pounds.

So when it comes to securing finance, break those old habits, stop manual loan sourcing, get involved in better borrowing, spread your equity across multiple projects and scale your business sooner with Brickflow’s instant loan comparison tech.

Then head to the beach.

Read more in The 6 Fatal Mistakes Property Developers and Investors Make (And How to Avoid Them).