Standard No. 2:
Flexibility should never come at the expense of the developer’s returns.
Introduction
In the 2nd edition of The Boldmen Standards, we examined the latent financial cost of staggered down payments and rent-to-own structures. We argued that while such arrangements increase buyer access, they simultaneously expose developers to hidden yield erosion. We went further to demonstrate how delayed down payments function, in effect, as unpriced credit, often extended without interest, rarely tracked as separate risk-bearing instruments, and almost never modeled accurately.
This edition of The Boldmen Standards moves the conversation forward. We now turn to the question: How can developers adopt flexibility without suffering losses?
Let’s begin by re-stating the issue:
In staggered down payment or rent-to-own arrangements, the buyer delays full equity/down payment contribution, but the developer delivers the entire property value from day one. This creates a dual capital exposure: a standard mortgage earning a 15% return, and a parallel, unpriced loan that carries risk but generates no return.
To preserve their yield, developers must break this “silent loan” out of the shadows. That means separating it from the capital stack, and pricing it with the same rigor they apply to the initial mortgage.
As per our recommendations in the previous edition, we shall now consider some techniques developers may use to preserve their yield while accommodating the buyer’s need for a flexible payment option.
Model for Scenario I, II and III.
Option 1. Fully Amortizing Staggered Payment Model
– Scenario II (see attached image above)
Here, the ₦2 million down payment is separated (from the ₦8 million stack captured in Scenario I in the image above) and modeled independently as a loan amortized over 3 years, accruing interest at the same nominal 15% annual rate as the original mortgage. Since the buyer is unable to pay the ₦2 million down payment upfront, the developer then allows the buyer to (either) pay a monthly “rent” of ₦69,331 or annual “rent” of ₦875,954, which effectively amortizes the ₦2 million down payment over a 36-month or 3-year period. After 3 years of consistent monthly/annual “rent” payments, the down payment will be fully paid (and with interest. Then, the buyer may elect to take on the ₦8 million mortgage at the same 15% interest rate for 20 years (at ₦105,343.2 monthly or ₦1,278,092 annually). This ₦8 million stack is then treated separately.
Because the ₦2 million is “separated” and treated as what it actually is: a loan, the developer earns their nominal 15% on both the ₦8M mortgage and the ₦2M staggered down payment separately.
Hence, no yield erosion as the structure isolates, prices and captures the time value of the staggered down payments.
Option 2: Accelerated Payment Model
– Scenario III (see attached image above)
This structure offers the buyer an opportunity to spread the ₦2 million down payment over a short, clearly defined period of 3 months.
To implement this, the developer breaks the down payment into three equal monthly payments of ₦666,667. The first installment, however, carries an additional charge, a 4% flexibility fee on the full property value (of ₦10 million). This fee amounts to ₦400,000 and is added to the first ₦666,667 payment. As a result, the buyer’s cash outflow in the first month totals ₦1,066,667. The second and third months each maintains the standard ₦666,667 payment to complete the ₦2 million equity contribution. By the third month, the down payment is fully settled.
Then, by the fourth month, the buyer proceeds to begin amortizing the remaining ₦8 million mortgage at the nominal 15% annual interest rate, likely through regular monthly installments spread over 20 years.
This approach achieves multiple objectives for the developer.
- The exposure period for the staggered down payment is tightly controlled, limited to only 3 months, thereby minimizing the duration during which the developer’s capital is exposed without compensation.
- The 4% fee applied to the first payment ensures that the developer is adequately compensated for offering this short-term flexibility option. It effectively prices in the opportunity cost and liquidity risk associated with staggering the down payment, without needing to stretch payments across a longer term or drastically inflate monthly figures.
From the buyer’s perspective, the arrangement offers a brief period of flexibility, enough to organize the required equity without incurring long-term rent-to-own obligations or facing exorbitant monthly installments. It is structured, predictable, and digestible, making it more market-viable than some of the extended rent-to-own scenarios that often suffer from yield dilution or affordability misalignment.
From the above, we see that in both cases, the logic is the same:
If the developer’s capital is exposed for a period of time, then it must earn a return that reflects both time and risk.
Anything else is a subsidy. And subsidies, unless planned and funded explicitly, degrade institutional viability.
Speaking of risk…
There is often some confusion, around the idea that the staggered down payments should earn the same return as the original mortgage. It’s a fair question. So we’ll clarify.
In a typical capital structure, the ₦8 million mortgage would be a senior loan, as it’s secured by the property itself, amortized over 20 years, and protected by foreclosure rights. If the buyer defaults, the developer repossesses, resells, and, under most market conditions, recovers their principal.
The staggered ₦2 million down payment, however, is not in the same class. It is a junior loan. And while it may appear to be secured by the same ₦10 million property, the security is largely fiction. If, for example, the property’s appraised value drops to ₦9 million within the first year, before the buyer has completed the staggered down payments (like in Option 1 above), the developer still recovers the ₦8 million senior loan. But only ₦1 million remains to cover what was originally a ₦2 million equity position. Now, unless the developer is allowed recourse to the buyer to recover their loss (via the contract), the developer bears that shortfall.
To reiterate, this is precisely why down-payments exist—to act as the lender’s cushion against price volatility. When the down payment is paid in tranches, this protection disappears. Putting the developer into a junior lending position, often with little or no interest income to compensate for the risk.
Thus, when developers charge the nominal 15% on the staggered down payment, or add a one-time fee for the flexibility to defer, it isn’t opportunistic. As a matter of fact, the yield to the developer should be higher on the junior loan relative to the senior loan, for the reasons state above. This is where the one-time flexibility fee charged in Option 2, comes in. Buyers gain short-term access, while developers earn a commensurate return for their capital.
Flexibility, in this case, is not a right. It is a privilege and must treated accordingly.
About the Author
This edition was compiled by Da-tonye Bright Agborubere, the Lead Solicitor and Head of Research for Boldmen Bridgewaters Advisory.
