A ground up developer goes through an extensive, often painful process building out a new scheme and selling a new plot. A typical example includes:
- Buys the land subject to planning.
- Eventually obtains planning. (later than expected as was assured it would ‘sail through’)
- Employs several third party professionals such as, architects, surveyors, lawyers, QS etc.
- Obtains funding for the scheme.
- Starts the build and needs to mitigate a number of issues, e.g. Flood, ground contamination, bats!
- Despite all the issues completes the build to practical completion with warranties.
- Sells all the plots off plan (starts to consult calendar for holiday booking)
- Delays exchange of contracts several times due to timing issues with buyers
- Eventually sells just enough plots to pay off the scheme lender. Next plot sale = profit.
- Receives a call that the next plot sale is cancelled because the buyer was in a chain and one of those of nine in the chain had a problem.
- Holiday cancelled amongst other things.
It can be so frustrating for developers who have professionally navigated the difficult and onerous challenge of a new build scheme only to find themselves on the hook for the problems of 9 other people who are nothing to do with them.
Part Exchange is a solution to this problem. It’s a clean and simple process which removes the buyer from a chain and converts the transaction into a straightforward swap between the developer and the buyer. All those timing issues around exchange and completion dates become infinitely easier and more controllable.
The national high volume developers have been doing this for years. Why haven’t the SME developers offered PX? The answer is simple, they can’t afford to buy a house for every plot they sell. It’s is a big chunk of cashflow needed to start buying real estate. The next problem for SME developers is the expertise in valuing, assessing, and selling a house in the secondary/open market -it’s just not their bag.
We have partnered with The PX Hub to provide a new product – Financed Part Exchange. The PX Hub provide the expertise in valuing and selling the second hand property and we provide the funding so the developer isn’t using all their cashflow on part exchange deals.
Working collaboratively we can help developers buy in houses via part exchange for the new plots and quickly complete them within weeks so the developer is not holding housing stock. This is a complete solution combining estate agency and finance to remove the barriers to PX that have existed until now.
Some developers that have used this strategy have actually been able to profit from it.
If you would like to know more about how you can use Financed Part Exchange for your developments please contact email@example.com for more information.