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?
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.
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.
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 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.
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.