A residual stock loan is a short-term loan that is secured against the unsold dwellings in a development project. Residual stock funding takes the pressure off the developer, by giving them time to find buyers willing to pay fair prices for their unsold homes.
The most obvious use of a residual stock loan is to maintain and market the ‘leftover’ dwellings until they’re sold. But the funds can also be used for other purposes (depending on your lender), such as funding your company’s day-to-day operations, doing work on one of your other properties or buying another development site.
Generally, this type of finance solution involves refinancing – from your original property development finance (with a higher interest rate) to the new residual stock finance (with a lower rate).
As with all aspects of property development finance, different lenders can have very different terms. Typically, though, residual stock finance loans last for six to 18 months with loan-to-value ratios of 40% to 70%.
Residual stock funding is designed for property developers who complete a project before they’ve sold all their dwellings.
This potentially leaves those developers with a big financial hole, because while they’re able to generate some revenue from renting out the unsold dwellings, they’re pocketing much less than they’d get from selling the homes.
One reason developers might have unsold stock is if there’s been a downturn in the market, which now makes their selling price look expensive. Another reason might be if they’ve deliberately withheld some stock from the market, to avoid creating an oversupply.
Whatever the reason you may have unsold stock, if you find yourself in a financial hole, you need to fill it – which is where a residual stock loan comes in.
Refinancing from a higher-rate construction loan to a lower-rate residual stock loan lets you extend your loan term, and at a cheaper rate.
That gives you valuable breathing space, because it means you’re no longer under pressure to force through the sale of your residual stock and potentially accept a low price.
CPC have put together many residual stock finance packages over the years. We’ll take the time to understand your unique situation, so we can provide you with a residual stock finance solution that is tailored to your specific needs.
Crowd Property Capital can help you secure the residual stock funding you need. We have relationships with dozens of trusted lenders, from banks, non-bank lenders and managed funds to, family offices and high-net-worth individuals. That means we can match you with a lender that:
To discuss your residual stock finance options, book a free strategy session with David Lovato.
Phone: 0434 932 634
Email: [email protected]
What is residual stock financing?
Residual stock financing is finance for the unsold portion of a development.
For example, if a developer built a unit with six dwellings but only sold four of them, the developer may need residual stock financing to settle the development loan before the remaining two units were sold.
When should I consider a residual stock loan?
A developer should consider a residual stock loan when there are unsold units, and the developer needs more time to sell those units.
Is a residual stock loan short-term or long-term?
A residual stock loan is a short-term loan designed to provide interim finance between the developer needing to settle their debts and selling all their stock.
How does residual stock funding work?
Residual stock funding generally involves refinancing the original property development loan.
This refinancing will often occur at a lower interest rate, because there’s less risk, as the development is complete.
What do I need for residual stock funding?
To qualify for residual stock funding you need unsold stock of whatever you developed.
You also need an estimated value of the residual stock which can be undertaken by a property valuer.
You could consider using a finance broker to help you get competitive rates and favourable terms.
Crowd Property Capital Pty Ltd (CPC)
A registered company under the Corporations Act 2001, ACN 600 539 544
An accredited member of the Finance Brokers Association of Australia (FBAA) Member No M-352808
A licensed Corporation under the Property, Stock and Business Act 2002, Corporation License No. 10065109.
A member of the Real Estate Institute of NSW (REINSW)
David Lovato (Sole Director) holds a Certificate IV in Finance and Mortgage Broking and Property Services (Real Estate Agents License No 201 604 57 )