What are Stock Residuals?
Stock residuals refer to the remaining, unsold properties in a completed development. These properties represent untapped capital tied up in the form of inventory. Residual stock finance allows you to unlock the value of these properties while you wait for the right buyer or market conditions to improve.
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What is a Residual Stock Loan?
A residual stock loan is a type of commercial finance that lets property developers borrow against completed, unsold units in a development. If your development has unsold units due to market conditions or other factors, residual stock funding can unlock these units’ value to help you get much-needed capital.
Key Features of Residual Stock Loans:
Loan amounts are typically based on a percentage of the property’s valuation.
Short to medium-term financing (6-18 months) with flexible terms.
Residual stock loan rates are typically lower since finished units are used as security
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Most development projects are funded through construction loans, which must be repaid when the projects are completed. To do this, developers must be able to sell the units in time to pay off the construction loan. However, this is not always possible. Some factors can affect sales (like an economic downturn) leaving developers with plenty of unsold units and not enough funding to cover the construction debt. This is where a residual stock loan comes in.
Residual stock funding usually comes in the form of a refinance. The developer refinances the balance on their initial construction finance and replaces it with residual stock finance secured against the value of the unsold units. Since it is secured against finished, existing assets, the residual loan usually comes with lower rates. The developer now has time, usually up to 18 months, to sell the remaining units at a fair price and avoid losses.
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Residual stock finance FAQs
Residual stock finance is ideal for property developers with completed developments but still have unsold units. This type of financing can help pay off construction loans, but even if you are able to pay off your initial loan, you can still use residual stock finance to harness the value of unsold units to get capital for future developments.
Loan amounts typically range from 65% to 75% of the current market value of the unsold properties. The exact amount depends on factors like property location, market conditions, and lender criteria.
Residual stock loans are generally available for residential, commercial, or mixed-use developments, provided the properties are completed and ready for sale.
Approval times vary, but residual stock loans typically have faster processing times than traditional development finance, allowing you to access funds quickly.
If properties remain unsold at the end of the loan term, you may negotiate an extension, refinance the loan, or explore other financial options with the lender.