Introduction
The real estate investment projects that are financed through the support that the Bank provides to the Promoters, sometimes present a degree of difficulty due in most cases to the fact that these promoters do not have the necessary economic infrastructure (solvency) that allows them to access these credits in a total and effective way.
Some of these projects, those carried out by small promoters and which, compared to those of other better considered ones - the big ones -, could be considered as small ones. From our professional point of view, we consider that these projects are of great importance, since the number of small and medium developer-builders in the Autonomous Community of Madrid and other neighboring Autonomous Communities represent almost 90% of this business group.
The construction boom that we had in past decades comes back again from 1998. The demand for homes is encouraged, especially by the price of money affordable to the least favored pockets, who can already buy a home under very favorable conditions. Better prices could still be obtained if land could be accessed at a good price, and this can only happen in areas far from the capital, where the impact is less.
This apparently favorable situation for the evolution of the market does not change in any way the attitude of financial institutions that continue to limit their credit support to small and medium-sized developers, or at least, continue to maintain very rigid rules for the financial evaluation of projects that They present them to determine the viability of the project and its profitability.
In this way they do not incur excessive complications, and the real estate projects that they may be currently analyzing are still rigorously applying the regulations to which we previously referred. So, if we find a developer who has a good project to build houses, but who does not measure up to access credits "to the developer" that the Bank grants, "this project", as interesting as it may be, remains set apart and forgotten.
The purpose of this report is to present, in a succinctly indicative way, rules that serve as a guideline to access REAL AND EFFECTIVE FINANCING, as an alternative to those traditionally carried out by Banks and other similar financial entities.
As indicated in the heading of this report, this financing preferably comes from private investors, who are recommended to make a certain investment, with the guarantees specified below.
Parameters that define a real estate investment.
A real estate project is characterized in its economic variant, by three basic parameters:
The payment of the lot.
The realization of the work
The cash flows, generated throughout the development, by the sale of the units to be built.
The payment of the site (or its contribution) is understood, which the developer must pay to start the construction project. As the payment of the investment has been defined, this parameter is reduced to a single figure, which will have included other concepts such as: technical fees, licenses and municipal taxes, notaries, registrations, etc.
The second point indicates the fixed investments at cost price that the developer has to carry out in the course of the work. From the excavation, through the various stages, to the completion of details and completion of the work, they will be disbursements that the developer must make, although with certain frequency the payment of this investment is not made up of a single amount, but rather a set of them– installments on account to the builder, cover letters, etc.–, that is, the payment of the investment, within the time it lasts, is divided.
The "cash flow" generates two currents of opposite sign:
the current of collections
and the current of payments.
Collections correspond to the income attributable to the sale of real estate units that make up the promotion: deliveries on account of clients, bills due during the execution of the work, etc. Among the payments should be considered ordinary and extraordinary.
The ordinary ones are the commitments acquired with the builder or if the developer is at the same time a builder, with the different similar ones that intervene in the work in items whose payments are previously agreed by contract.
The extraordinary ones are those that can occur throughout the execution of the project, such as a bridge loan, for temporary situations of lack of liquidity.
ADVANTAGES OF THE PROMOTER IF YOU HAVE A PERMANENT CASH-FLOW TO CARRY OUT THE WORK.
When we mentioned before the parameters that define a real estate investment, we have defined the investment returns through its cash flows: COLLECTIONS and PAYMENTS - versus - INCOME and COSTS.
We consider established the conceptual differences that exist between the components of cash flows (collections and payments) and benefits (income less costs). A good permanent management control will allow the promoter to obtain the expected benefits.
As is obvious, the Promoter to start a promotion must have a working fund, loose enough, that allows him to undertake the new project and perfectly cover the parameters of the investment via self-financing, at least those referring to the site and other expenses already detailed.
Our system of capturing monetary contributions by investors will allow the developer to carry out the real estate investment project, knowing in advance that the funds necessary to build are deposited in the Bank, which guarantees the operation, and may dispose of them as and when the work needs it, in the different sections of the execution.
Historically, the developer works with cash flows derived from the income generated by the advance sale of real estate units. It usually has difficulties, because undoubtedly the costs that make up the promotion are often higher than the profit flows, which produces treasury tensions, the promoter having to go in most cases to "bridging loans", increasing or increasing their costs. Operating costs.
With our system the Promoter carries out the project in its entirety, with the money flows that come from the investors who have previously deposited the investment money agreed with him, in a current account opened for this purpose, which will allow the Promoter, carry out the works without the treasury tensions to which we previously referred. Since there will be a "planning" of payments referring to the work units carried out by the Builder, the Bank will pay the certifications of works carried out, in the form and time that have been contractually agreed.
Thus, the Promoter may indicate to the Builder and / or Suppliers that the payment of the certifications or invoice issued will be directly paid by the Bank, with which it can obtain advantages from them, such as discounts for prompt payment, special bonuses, regardless of the Opportunity prices that you have obtained, in the case of being both a Developer and a Builder, for managing your own purchases of materials and / or services.
Other of the additional advantages of the Promoter, is that it will not make its administrative circuits more expensive, since it will simply give the approval of payment to the work certifications or invoices presented and that have been made or completed, which as we have said will be paid by the Bank.
Influence of time on the value of money
This brief analysis, essential to study any real estate project, will reveal the most convenient method to evaluate the profitability that investors will achieve, from the moment they deposit the money in the Bank, as temporary partners of the Promoter or Promoter.
Real estate promotions (flats, villas, apartments, etc.) that are financed by this system must not exceed 12-18 months in their execution. This premise leads us to the conclusion that it is advisable to carry out a homogenization consisting of paying the amount of the economic investment plus the agreed interest in these maximum times, without prejudice to the fact that the Promoter can finish the work early and exercise his options with the investor, which would increase the annual profitability of the same, when receiving his money and his interests before the anticipated.
Economic profits for the Investor
The money contributed by investors will be channeled by us as a wealth management company, only and exclusively in those real estate developments that have been analyzed and structured their Marketing plan, which must guarantee that there is a priori potential market that will demand a certain type of housing, which adjusts to price, quality of construction, distribution of space, etc., in short, that the target market accepts the offer willingly and buys off plan.
Experience has shown us that in order to attract investors who collaborate financially in the real estate projects that we have been discussing, it is that in the absence of inflation and uncertainty, the investor who invests his money at "i" percent, is indifferent to perceive his return to the end of the year or before the year.
The important thing is that the investment you make considerably exceeds the interest that is usually offered by your Bank or Savings Bank in the same period of time, however, with the same guarantees and solvency of the investment.
For our comparative analysis, the interest rate will be nothing other than the price of money, which is established by the capital market.
What is ultimately intended with this proposal to the potential investor market is to provide liquidity to the real estate projects that we launch. The investor looks for benefits and we are going to give it to him, taking advantage of the enormous current business possibilities of the sector, which grows continuously depending on the offer. This investor participates in the benefits that the Promoter obtains when selling the homes and receives it via bank both the liquid capital contributed - real estate unit at cost price + the agreed interest and return on your investment.
The investor receives at the beginning of the development a real estate unit that is put in his name in a private contract and the fixed price is the cost price of the house that results to the Promoter. This first investment guarantee is what we call collateral. The Promoter carries out a purchase option in the same act in the time established (12-18 months), which he will exercise by paying the investor the capital - the price of the apartment at cost price - plus an interest agreed in the same document.
Also in that document, the investor, as the owner of the home, authorizes the Promoter to freely manage the sale to a third party that will take effect when the contract covenants are fulfilled, that is, when the developer has exercised the purchase option. This phase in the process will have no cost to the investor.
As the initial purchase and sale operation in favor of the investor occurs in cash, this amount is deposited in the Bank's Guarantor of the operation, in an account where the funds contributed by all investors who adhere to the real estate investment project are deposited. At that time the Bank will issue to each of the investors a GUARANTEE on the amounts delivered for the purchase of the apartment, by means of a document that refers to Law 57/68, which states who the Promoter is, which is the apartment who buys, block, stair, floor, letter, etc. and the name of the Urbanization or Promotion.
How does the Promoter operate from now on?
Once the phase of raising the resources of the investors is completed, and the set of capital contributed is equal to the cost of the work as a whole, the Developer as the first item of the budget to be used will pay the lot (if not in contribution) and this will be written in the name of the Promoter, in order to carry out the pertinent legal steps to start the Promotion.
Then it will use the rest of the capital for the execution of the work, permits, notary expenses, municipal licenses, technical fees, marketing costs, etc.
From here on, like any real estate development, the Developer will announce the start of the works and will start selling to future homeowners. These will buy at the PVP that the Promoter has set, and if they wish to acquire a certain home, the contracts may not yet be extended to them, as is obvious, but they must make an economic reserve and begin to enter the same Bank, the different amounts stipulated in the conditions of sale, in a savings-housing account.
These buyers have to enter these amounts for the duration of the work and until the keys are delivered. The Bank will simultaneously study the granting of a mortgage loan to complete the total final price that the Promoter will charge.
Once the works have been completed with all the assets, and these final operations have been carried out, and with the resulting liquidity, the Promoter will execute the purchase option, paying the investor what has been agreed (capital + interest) and then write in the name of the final buyer. The benefit of the Promoter is in the differentials that occur when performing the two operations.
What will the Bank guaranteeing the operation obtain in exchange?
You will obtain indirect compensations of the liabilities that you will manage correctly so that the work is completed without problems. The profitability of the office will increase considerably because it will have asset accounts (Developer, Builder and Others) and Liability (the funds deposited by the Investors).
It will become the best informed entity in your area of action to sell all its financial products:
Firstly, the mortgage loans related to the promotion, savings-housing accounts of the future owners, etc. and to the people and / or entities involved in the system, such as:
- INVESTORS who will trust the Entity that has caused their savings or investments to have produced a greater interest, much higher than the capital market average.The PROMOTER who with the confidence received from the Bank to carry out all these operations, It has allowed him to carry out the work with absolute peace of mind and guarantee towards his investors.The SUPPLIERS, whether they are the Builder or the different similar ones that intervene in the work. They will be able to expedite their collections, because they will open an account in the same bank office so that the funds can be transferred to them. The Director of the office will know the evolution of these companies and will be able to propose other banking businesses to them.that they have bought their homes and the information they have previously received from the developer regarding their data on the personal or family unit, which has facilitated the granting of the mortgage for the purchase of their home. Later they will be clients of the entity for other types of relationships, such as, direct debit of payroll, receipts, pension plan, consumer credit, home insurance, etc.
