How To Finance Property Developments

The diversity that comes within property development is what
makes the sector so exciting. However, development finance
may be the hardest aspect to navigate especially if you have limited
experience.

To gain a better perspective, read on to find out the
potential paths you can take when trying to raise development finance.

Do Your Own Research

First of all, if this is your first development project you
should conduct your own research. This will give you a thorough understanding
of property development. Research is important because development finance
differs with every property case.

By doing research, you will have a better understanding of
what source of funding would be best. There is a wide variety of funding
options available, and trying to navigate through them can feel like a
minefield.

Raising development finance

Doing research is the easy part. Getting funding is where it
gets a little difficult. So, what are the funding options available?

Personal Savings

We’ll start with the most obvious one, your personal
savings. If you are fortunate enough to be in a position where you can fund a
development project, then this may be a great option. However, this is highly
dependant on the type of property you would like to develop.

Commercial Finance

Whether you are an individual or a business looking to get
into property development commercial finance is an option. For many, this is
the first choice they turn to. Usually, lenders will look into your
requirements and finances to work out what the best possible lending option would be.

Commercial Mortgage

If you are looking into non-residential property
development, then this is a great option. Commercial mortgages can help with
purchasing shops and warehouses that you could later sell on.

A commercial mortgage is a more affordable option as it
spreads out the costs for a longer period of time. However, if you are an
entrepreneur or start-up it can be difficult to get a commercial mortgage. On
the other hand, if you already own a business and have a good track record then
it will be a lot easier to obtain.

Re-mortgaging

Re-mortgaging is a common option if you have an existing
property. Although common, it is mainly used by investors that have other
properties or a vast amount of equity.

This option should only be considered once you have
undertaken property valuation, detailed appraisals and conducted extensive
research. This is key so that your financial life and funds are not impacted
negatively.

If re-mortgaging is not a viable option then, you can look
into this option with your mortgage lender.

With a further advance, you should note that it is not the
most cost-effective solution. The reason being is that usually, it is offered
on a standard variable mortgage rate making it a more expensive way to make
money.

Joint Venture

With a joint venture, the property is held in an SPV
(special purpose vehicle). But, it is jointly owned and controlled by the
investor as well as the developer.

The nature of the relationship between the investor and
developer is decided by a shareholder’s agreement and the special purpose
vehicle’s articles of association.

As a reflection of their economic and control rights, the
developer and investor usually hold different classes of shares.

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