The deal looks good. Does it really work?

The profit is on the spreadsheet. The cash may not be in the bank.

That distinction matters more than many headline property returns suggest. A project can show a promising margin and still be difficult, or even impossible, to deliver with the funding and resources available.

Take a refurbishment. The investor has a purchase price, a works budget and an expected finished value. On paper, the numbers leave a reasonable return. But what happens between completion and the finished property?

Depending on the facility, a lender might advance part of the funding at purchase and release further money in stages, once work has been completed and checked. The contractor may need paying before those funds are released. A facility described as covering the works does not necessarily mean all that money is available on day one.

A projected profit cannot pay a contractor. Available cash can.

The figure to establish is the maximum cash you will need to commit before the next drawdown or repayment arrives. That includes any costs the lender will not fund and a reserve for delays or overruns.

Acquisition expenses, tax, legal and valuation fees, insurance, finance costs, monitoring, a contingency allowance and the costs of the intended sale or refinance all need to be considered. If the programme overruns, some costs keep accumulating without creating additional value.

Two projects can show the same anticipated profit but carry very different risks. One has a properly costed schedule, evidence supporting its assumptions and cash available for unforeseen costs. The other depends on optimistic estimates and every pound arriving exactly when expected.

Before I would describe a deal as workable, I would want answers to three questions:

1. How much cash is needed at each stage, and when will it actually be available?

2. Which assumptions have been tested, and what evidence supports them?

3. What happens to the funding and the investor’s position if the project takes longer or costs more?

Test the project’s profitability separately from its cash requirements. A positive margin does not establish that you can fund the work, and sufficient cash does not establish that the return justifies the risk.

The right finance can make a worthwhile project possible. But arranging the money to complete a purchase is only one part of making the whole transaction work.

That connected approach runs through my book, The Finanze Framework™: Property Strategy & Finance Success. An appealing deal is a starting point. The next step is to establish whether the evidence, funding and resources support its delivery.

This article is for general educational information only and is not personal financial, investment, mortgage, tax or legal advice.