Property Development Cash Flow: How to Forecast and Manage It

A development’s profit is decided at the end, when units sell. Its survival is decided in the middle, when costs are highest, interest is building and nothing has sold. Developers who manage cash well treat each project as its own business with its own month-by-month cash plan, and update it as rigorously as they manage the build. For how development cash flow works and a worked project schedule, see the property development cash flow forecast page.

The project cash plan

For each project, from land acquisition to final settlement:

• Land and acquisition costs: purchase, taxes, legal fees
• Pre-construction: planning, design, surveys, permits
• Construction: contractor payments on the build programme
• Professional fees through the project
• Finance: arrangement fees, interest, exit fees
• Marketing and sales costs
• Contingency
• Funding in: equity, loan draws, pre-sale deposits where usable
• Revenue: sales settlements or refinancing on completion

Build it monthly, and keep it in the same format as the lender’s cost report so the two can be compared line by line. The peak funding requirement, the point where the most cash is committed and nothing has come back, is the number everything else depends on.

Funding: equity first, then draws

Most development lenders require the developer’s equity to go in first, then fund an agreed share of costs through staged draws against progress, certified by a monitoring surveyor. In the cash plan:

1. schedule equity to cover land and early costs
2. schedule each loan draw in the month after the certified work it funds
3. check the gap between paying the contractor and receiving the draw

Draw timing mismatches are a common source of short-term squeezes.

Interest on the drawn balance

Interest is usually charged on the drawn balance, which rises through the build. Many loans roll interest up into the balance rather than requiring monthly payments, but it still reduces the equity left at the end.

Forecasting interest on the full facility from day one overstates it; forecasting it on a flat average understates the late months. Use the drawn balance.

A worked project

A developer buys a site for $650,000 with $700,000 of partner equity. Construction costs $190,000 a month for nine months, funded by matching loan draws, with draws arriving about two weeks after each monthly certificate. Professional fees, permits, marketing and interest add $30,000 to $50,000 a month. Units are expected to settle in month twelve.

The cash plan shows the developer’s own cash falling steadily from month two, because fees, permits and interest aren’t covered by the draws, and the two-week lag on draws means each contractor payment briefly comes from the developer’s account. The lowest point is around month ten, after construction completes but before settlements. A three-month sales delay scenario shows an extra $130,000 of holding costs and interest. The developer agrees a facility extension option with the lender at the outset and keeps $150,000 of equity uncommitted until settlements begin.

Contingency

Hold a real contingency, commonly 5 to 10 percent of construction cost, more for refurbishments or unknown ground conditions. Track what’s been used and what remains, and don’t treat unused contingency as profit until the build is complete.

Delay scenarios

Delays are the most common way a sound development turns into a cash problem. Model at least:

• Planning or start delay of three months: extra holding costs and fees
• Build delay of three months: extra interest, site costs and professional fees
• Sales delay of three to six months after completion: interest and holding costs with no revenue

Each scenario shows the extra funding needed and whether the loan term still works.

Sales and deposits

Pre-sale deposits give evidence of demand, but in many places they’re held in trust until completion and can’t fund the build. Check your contracts and local rules. Forecast settlements realistically: buyers’ mortgage timing, snagging and legal completion can push settlements weeks or months after practical completion.

Reporting to lenders and investors

Monthly reports usually include:

• costs to date against budget and cash plan
• draws requested and received
• contingency used and remaining
• programme progress against plan
• sales status and expected settlement dates
• the updated cash plan to completion

Consistent, honest reporting makes it far easier to agree changes if something goes wrong. Lenders are much more willing to extend or restructure a facility for a developer who flagged a problem early than for one who reported it at the last moment.

Costs developers often miss

• Utility connections and infrastructure charges, which can be large and due before completion
• Section agreements, impact fees or community charges, depending on your jurisdiction
• Holding costs after completion: insurance, security, service charges and property taxes on unsold units
• Sales costs: agents’ fees, legal fees and incentives, usually paid at settlement
• Warranty and defects costs after handover

Each belongs in the cash plan in the month it’s paid.

Running several projects

Developers with several projects need a company-level view as well: head office costs, equity commitments across projects and the timing of each project’s peak funding. Two projects peaking together can stretch equity that looked sufficient project by project.

Warning signs

• Contingency used early in the build
• Draws delayed by missing certification or paperwork
• Programme slipping without an updated cash plan
• Sales slower than forecast, or buyers pulling out
• Interest cover or loan-to-cost ratios approaching limits
• Equity committed to a new project before the current one reaches its peak

When cash gets tight

1. Update the cash plan to completion with realistic dates.
2. Talk to your lender early about draw timing or facility extensions.
3. Review phasing: can units complete and sell in stages?
4. Consider bringing in additional equity or mezzanine funding, weighing the cost carefully.
5. Protect contingency for genuine risks.

Tools

The premium Property Development template includes a Project Schedule tab for land, equity, draws, builder payments, deposits and settlements by month, scenarios for delays, a 3-year outlook and a dashboard. See also scenario planning and what lenders look for.