Residential Property Development Finance Can Vary

23.01.2012
12:51
0
By Sean Horton




When looking to take out residential Property Development finance the most important point to remember is that the rates of interest can vary considerably. Finance for development purposes is nothing like a personal loan and the terms and conditions of it go on the individuals circumstances. You get a lower rate and better deal the more experience you have. What you are intending to do will also go a long way to determining how much finance you will get.

The majority of lenders will give you an interest rate of around 1.5% and 2.5%. When it comes to getting the cheapest rate a specialist will be able to shop around with the whole of the market place to find you the best deal. Lenders are more tolerant of brokers and will allow negotiation to get the cheapest rate of interest based on the circumstances of the individual and their proposal.

The actual terms that Residential Property Development finance is offered over will basically depend on the size of the project in question. Large projects which require substantial financing are often taken over many years and in this case the lender will propose an interest only loan. This means that throughout the period of the loan you will only be repaying the interest that accumulates on the loan. This will come with cheaper repayments than a repayment loan each month. There is a downside to this, when the term of the loan has completed you will still have to pay the capitol which was initially borrowed. A lender will want proof that you have the finances to repay this in total.

If your project is only small then you could consider a repayment loan. The biggest advantage to this is that you will pay off the interest and the capital throughout the term of the loan. By paying both back the monthly repayments will be bigger than those of the interest only, but once you have completed the term the loan will be fully paid back.

Finding residential property development finance that gives 100% finance can be hard. The criteria which a lender sets out will be harder to meet. Typically you can expect a lender to offer around 70% to 75%. This will be determined by loan projection costs, if the developer has plenty of past experience in similar projects and can show excellent projections then 100% might be given. When expecting to get the best rates a broker should always be used. Lenders prefer to work alongside a broker rather than an individual unless of course the individual has great experience in property development and the options for financing.

Residential property development finance should be given some serious thought. Sometimes a project will run into tens of thousands of pounds and so the best advice is essential. A specialist will always be there to help give you this advice every step of the way and work with you from start to finish. The fees that come with a broker can be well worth it in the end for the stress, time and money that can be saved.

Property Development In 7 Steps

17.01.2011
23:08
0

By Brian Toon
Do you have a large property that you are sure could be upgraded for great wealth but have no idea how to develop it? Are you close to retiring and want to move into a smaller property but get the most value out of your existing property? Property Developing could be the answer you are looking for…

As with all projects taken on in life there is a system for everything. Property developing is just the same. There are seven key steps for Property Development:

The critical steps are:
Find a site (if you are not sitting on one right now)
Site analysis
Feasibility
Planning Permission
Finance
Construction
Sales

Finding a site is quite easy just look in the real estate section of the newspaper. Look on real estate websites. You are looking for a property that can be divided up or could have more built than what currently is on the property now; or value added.

If you already own a piece of land that you have a feeling could be developed to create much more value for yourself; finding a site is not required.

Site analysis and feasibility is the step that can be critical for a project. It basically requires researching a site to see if it is profitable. Property developing can hold hidden costs. To find out what cost are required it pays to call professionals to find out costs. Call your local council for all required costs required to have all utilities connected/upgraded for your project. Architects are excellent source for determining costs like council approval costs including drawing required. Construction cost can be very important as many projects where new buildings will be built the construction costs are a large part of a project. The last important piece of information is sale price because if you can not sell your product for enough (or it sits on the market for a long time) the project will not be infeasible.

Planning permission this can sometimes be done for you already if you property and it is advertised that it has approval you will not require this. If you own a property that does not have this on it, you will need professional help. Architects can be invaluable here or someone who is a property developer themselves or a property developing company offering Project management can help. Using a professional can take the pain and stress away from you making it a much better experience.

Finance is one of the most fun topics to deal with. As we all know talking to banks can be difficult to get finance for homes. And the same if not more difficult for projects and a good financial package is required as all banks will have requirements including profit margin. Banks will not lend on a project with a lower than 20% profit margin.

Construction can be one of the most exciting and scary steps. Obviously most people won’t do the building themselves it will be done by a builder. Construction is quite simple when you have a building approval you allow the builder on to start building. When paying for building as it continues through the project the builder will require funds for work completed. Paying the builder can become a bit tricky because obviously if you end up paying for construction before it is complete then the project might go undone. Have a contract in place, the contract will list all required steps and funds can be distributed to the builder in stages of development. You may pay a professional to monitor these steps to keep the builder honest at all times.

If you are concerned about a large project hire a quantity surveyor to follow the project. They will report on what has been completed and what should be paid for. Quantity Surveyors are professionals at this and take the risk out of construction. One other advantage is if you have a quantity surveyor you can also get them to create a depreciation schedule to help sales.

Sales is an interesting topic. We all know that you can use a real estate agent to sell products. This can be very helpful as these people are professionals in the property selling business. Another option is going to a promoter (or Marketer) who will actually sell the product for you to a list of customers they have (database of clients looking for investments). This can cost more but if you need pre-sales they can be extremely helpful in getting fast sales.

If you have a property and would like to get developed it into something much more or know of someone who is in need. However, if you are still unsure as to the first person to contact to get started.


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Property Development Due Diligence – Steps To Doing It Right

19.04.2010
21:53
0
By Bart S Pair





Property Development due diligence involves many steps. When done correctly the risk involved with land development are greatly reduced and the odds for profit are increased considerably.

The first step before signing your contract with the Seller is to clearly negotiate all terms that you require. If you and the seller understand all that is expected of both parties, in particular during the due diligence period, you will avoid potential problems down the road. This is where your attorney comes into place. I highly recommend hiring an experienced real estate attorney that is familiar with negotiating land purchase contracts and working with developers. Purchasing land is risky and it is best to minimize your risk from the onset. Typically land purchase contracts go through numerous negotiations and revisions. It is much more difficult after the contract has been signed to get the parties to agree to contract amendments, although contract amendments and addendum are prepared quite frequently based upon inspection report findings and other events that occur during the due diligence period.

Requesting in the contract that the seller provide inspection reports or other documents you require during the due diligence period is crucial in evaluating whether you are able to achieve your development goals with this particular piece of property. Be sure to provide a time period for the due diligence that all parties must comply with. 30 to 60 days is the minimum due diligence period for the buyer to conduct his due diligence but 120 days or longer is not uncommon with complicated acquisitions or parcels that require rezoning or are contingent on permit approvals.

There are many factors that you should consider which influence purchasing unimproved land. Since purchasing raw land has risks, I suggest you keep in mind the following (Please Note: Much of this information was gathered from the website Property Development Source):

1. Title Issues.

Are there any clouds on the title? In other words, does the seller have clear title to the property? Review of all title reports and underlying documents affecting the property is crucial. Having a real estate attorney review the documentation on your behalf is recommended whether you are a novice or experienced investor/developer. However, you should review the documents yourself too. Ask questions if you do not understand something or it looks odd to you. The main concern is to make sure the seller does in fact have legal and clear title so that you will not have any legal issues later on. Title insurance protects you in this regard, but you do not want to have to be litigating title issues when they can be discovered early on before you close the deal.

2. Survey Issues.

Are there any encroachments from adjoining properties on your land or vice a versa? Encroachments could be neighbouring buildings, utilities, easements, fences, water, etc. Are the property boundaries clearly marked and surveyed? If there are encroachments, you and the seller will need to be able to resolve the issues prior to closing. Some issues may not be able to be resolved or resolved in a timely manner and you must decide if you still want to purchase the land despite the unresolved issue. You may need the seller to obtain what is called an easement from an adjoining property. An easement is a written document allowing one party use of another party’s water, road, utility lines, parking spaces, driveway, etc. An easement is typically drawn up by the seller’s attorney and reviewed by your attorney. Title companies will exclude encroachment issues from your coverage so it is important to resolve these issues immediately.

3. Land Use Approvals.

Zoning regulations, site plan approvals, building permit and approvals, lot size, setback issues, fire safety issues, environmental and health issues such as sewer, septic disposal, storm water management, streams, rivers, wetlands, etc. Recommend obtaining an environmental report to determine if there are any problems with chemicals, pesticides, pollution, etc.

4. Availability and Access of Utilities.

Access to utilities, water, electricity, gas and sewer/septic systems, telephone, cable and internet is another concern that needs to be investigated. If access is not readily available, it can be costly to get basic utilities to the site.

5. Accessibility of roads.

Are there roads already in place or will you need to build them? You also need to consider the cost of maintaining the roads.

6. Topography, drainage and flood zones.

Recommend obtaining a soils report and geology report. Is the property in a flood zone? There are designations of flood zones areas and insurance availability is conditioned upon what flood or fire zone properties are located in. Slope issues, stability.

During the due diligence period, the seller must provide you with certain past or current reports that he has in his possession such as geology, soils reports, environmental reports. It is best to request these in your contract so that all parties are clear about what they need to deliver to each other. Depending on how old the reports are you can then decide if you want to rely on the seller’s reports or obtain new ones. Also, be sure your contract states the seller will assist with any permitting or regulatory actions that may be required during due diligence. (Often local permitting agencies won’t release information or accept rezoning or permit applications without the present owner’s signature. This clause in the contract states the seller will sign these type of documents as needed.)

It is also important to remember that the seller cannot legally sell the land to someone else. He can take back-up offers, however. A back-up offer is another offer contingent upon the first offering not going through and the first buyer cancelling the deal. It is totally legal and ethical for a seller to take backup offers and this practice is done frequently in a seller’s market [where demand is high and inventory of available properties is low]. The seller cannot legally disclose to the second backup buyer the purchase price or terms of your offer unless all parties agree to the disclosure nor can he disclose to you the amount of the backup offer and terms without the other party’s consent.

By doing your due diligence you minimize your risk. It is impossible to anticipate every source of delay or risk. Conducting due diligence will cost you money and time. The customary way of conducting due diligence is to hire professionals to assist you. Attorneys, surveyors, engineers, environmental experts, zoning and land use specialists who will review documents, do inspections and make inquiries on your behalf during the due diligence inspection periods negotiated between you and the seller in your purchase contract.

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Real Estate Development Marketing

07.04.2010
22:08
0
By Colm Dillon




When do you start?

As soon as you open your ‘baby blue eyes’ every morning!

“The Easy Part of Property Development is Spending Money” … “Marketing Is What Gets It Back + A Bit More For Profit.”

Anyone can spend money. It takes a good manager to spend it at a predetermined rate in line with a planned ‘cash flow.’

So this topic is very important. People think Development Marketing is all about putting an advert in the paper, designing a brochure and following up the agents … I don’t think so folks!!

Marketing starts before you buy the land.

The location of the land impacts on marketing. Is it a desirable address? Is it in a prestige location? What market sector of the buying public are you aiming for? Does the site have local prominence? Does the land have quality houses around it?

All of these questions impact on your marketing plan, the home designs you select, the costings and ultimate sales prices.

So if marketing starts with the land selection, it logically then goes on to the
design stage. Assuming you don’t want to just copy something you’ve seen another developer has done, you need market knowledge.

You need market knowledge of the exact standard of product you are competing against in the market now. Remember you won’t be producing yours for another 12 months or so and you’ll want to improve on what is being produced today, so you have a market difference. An ‘Edge.’

Marketing is no more than the presentation of your finished product to the
buying public in the most favourable light, highlighting all the benefits
your home has over the competition.

One kind of marketing style that is a failure as far as I am concerned is the one that is based on the “Numbers Comparison.” I am sure you’ve seen the on site project boards.

Our house has 5 of these, and 6 of those … when that guy’s house only
has 4 of these and 3 of those.

The potential buyer will eventually want to know these things, but “Right Now” they want to know “How They Feel” about living in the place, on your Road, in this neighbourhood.

Understand this: People SELL for Money … People BUY with Emotion.

If they don’t feel good in your place, it does not matter if you give then 12 of these and 20 of those … OK?

I have always DEVELOPED and MARKETED on the basis of appealing to the human senses of See – Feel – Touch – Smell & Sound.

I transfer all those into my designs, because I am designing and building for
‘Humans Beings’ and human beings buy with emotions … and if I do my work well, I’ll make a profit.

So as a buyer, if a house looks good when I drive up to inspect it, I am favourable disposed to buy before I open the garden gate.

When my feet touch the pathway/ entrance foyer and see the lovely landscaping my desire to buy is enhanced.

As I enter the house and feel the ambience of the house envelop me I
respond in a positive way to buy, if I feel emotionally comfortable in the space.

When I smell all the new house smells, it translates into ‘fresh’ ‘clean’ ‘new’ and who doesn’t want to buy fresh new things.

When I close the door of the house I enjoy hearing the sound of silence, which is conducive to rest and recuperation after a hard days work.

Think about how you respond to each house you inspect as you go about gaining market knowledge. Do you see, it does not matter how many ‘bibs & bobs’ the place has … if they don’t feel emotionally comfortable in the place, they won’t BUY!

Can you see why this is my number one topic?

So naturally I write about it a great deal in Residential Development
Made Easy.

So now you have some idea why marketing starts as soon as you open your ‘baby blue eyes’ every morning … marketing is a direct reflection of who you are and how you express yourself in creating beautiful liveable space FOR HUMAN BEINGS.

The ‘by-product’ happens to be ‘money.’ And if you do it very well,
it happens to be ‘Lots of Money.


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Obtaining Property Development Finance

06.04.2010
20:59
0

By Sean Horton

Whether undertaking a small-scale refurbishment or building a new multi-million pound complex, if the developer does not have all the money to fund the project, then the balance required could be obtained through one or more lenders. Traditionally, high street banks were used but invariably would only agree 50/50 deals (50% acquisition 50% build costs), increasing this to 70/70 deals for the experienced developer. This type of loan is usually referred to as ‘senior (bank) debt’ but still meant that at least a 30% deposit was required.

Should 100% funding be desired, then Property Development finance could be the answer which is a mixture of short and long term loans covering both the acquisition of the site and the associated building costs. Often with all the interest payments aggregated at the project’s conclusion when the properties are either refinanced or sold.

Property development finance can comprise of a mixture of elements including debt and equity finance (share capital where the investors receive a share in the ownership and dividend payments depending on the profit made, this is also known as risk capital). It can also include mezzanine finance which has the characteristics of both debt and equity finance, has higher interest and is payable after a term of 7 to 10 years. All these elements can be combined with primary lending sources to form the deal. Although no deposit is required, it does mean that the developer could have to pay over double the interest rate to that offered by traditional sources. Therefore, it would be prudent to assess accurately if the development will yield a good profit before proceeding.

When constructing a proposal, using terms and a format preferred by the potential lenders, could greatly enhance its chances of being successful. All figures ought to be realistic, with at least a 10% tolerance to allow for a downward trend in the property market. The inclusion of a contingency cost of 5% to 25% to cope with any escalation in costs or unexpected problems is also likely to be favourably received. In addition, having all the valuations within the proposal confirmed by an independent surveyor could be seen as a sensible practice. If the thought of assembling a proposal and the task of searching the marketplace to locate the best property development finance seems quite daunting, then using a commercial mortgage broker could resolve this predicament.

A commercial mortgage broker is more likely to have a greater knowledge of the complex options involved with property development finance and enjoy easier access to the marketplace. The developer could also benefit from their experience when creating a proposal, ensuring that the opportunity is attractively presented and in a language easily understood by prospective lenders. For example, having the developer show financial commitment to the venture by covering the associated professional and legal costs involved could be deemed more tempting.

Even if the developer is inexperienced or does not have a good record of accomplishment, a commercial mortgage broker could negotiate with a quicker delivery a better property development finance deal that could increase the profit, and give support in areas such as project management and offer alternatives and strategies should problems manifest during the project.

They can often provide guidance to help ensure that the final debt to GDV (Gross Development Value – the forecasted sale value after the building phase is completed) is no greater than 75-80%, thus making the proposal more appealing and with the prospect of yielding a feasible profit. After all, at the end of the day, making a profit is normally the driving force behind any project and an important factor when choosing property development finance to realise such a scheme.

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Residential Property Development

29.03.2010
23:02
0

By M Deskins
Thanks to residential Property Development, there has been a vast improvement in the old, run down neighbourhoods in the UK. Professional property development organizations, such as the Neptune Group, improve buildings and properties so that they can attract residents. For instance, they can rebuild and remodel old commercial office buildings and turn them into residential units.

Residential property development did not become popular until around ten years ago, and now public interest is increasing every year. Because they are able to develop new residential homes, companies like the Neptune Group are helping improve conditions in UK communities all the time. Because property development companies work with the owners of old buildings and properties at low costs, they have the time and money to improve the conditions in order to make the properties more “liveable” and affordable for others to live in.

Not every use of a property can be changed though, which is why it’s important for residential property developers to be consulted first. They will analyze a building to see if it can be successfully changed and improved, and if it can, they will then come up with a detailed plan on how to change it. Some properties may only need minor improvements, while others will need to be wholly converted.

If someone is wanting to turn an old house into a flat, for instance (or vice versa), it would be wise for them to consult a residential property development company in order to know just exactly what it would cost and how much time it would take for a successful change. They will also be informed by the property developers if the investment will be worth it. Sometimes the costs and resources of turning a building into a flat will be much more expensive than any revenues ever earned through renting the units out.

Residential property development companies are the best bet for anyone wishing to renovate his or her property so that it can be as good as new. Residential property developers can convert both homes and old, commercial buildings into improved apartment units, thus helping with important factors like urban development.

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Raising Money For Property Development

28.03.2010
21:21
0

By Don Suter

In addition to finding the right property, one of the most difficult aspects of Property Development is being able to fund the purchase and re-development of the property before putting it back on the market.

Many would-be property developers have the skills and flair for property development, but lack the financial clout to put these into practice. So what are the options for funding a property development?

Property development mortgage

A good place to begin is to talk to your bank or building society about taking out a mortgage to fund the development, however most high street mortgage providers are not fully equipped to service the needs of property developers and are more likely to refuse finance.

A better bet would be to try one of the niche mortgage providers who specialise in providing finance to property investors and developers.

Mortgages provided by these companies are often repayable on an interest-only basis and in some cases it is possible to borrow up to 100% of the development cost, however the developer is often required to own the land on an unencumbered basis.

It is also worth noting, that as the risk increases to the lender, the interest rate on repayments will also increase.

Using other people’s money

A cheaper way of raising money may be to borrow from other people, such as friends, family or colleagues at work.

The core advantage is that you are less likely to be saddled with expensive interest rates, but it is important to keep all business dealings above board and well documented, as it is all too easy for relationships to go sour if problems occur with the development.

Seek private investors

Another approach that the savvy property developer might take is to ask people to invest in the development, so that they can enjoy a profitable return on the sale.

This removes much of the financial risk from the developer and means that money can be spent on business expenses and not repaying high-interest loans.

Whilst selling a stake in the development is an attractive idea, it does require a good level of marketing skills by the developer to find and convince potential investors to part with their money.

Start small

It is still possible to find low cost properties around the UK, which are much easier to finance, before working your way up to larger, more profitable developments. Growing your property development business in stages allows you to gain valuable experience, reduce your risks and helps you to build up cash reserves to invest in future developments.

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Property Development – Feasibility Studies

23.03.2010
21:47
0
By Bart S Pair :




A feasibility study is performed at many stages of development in order to analyze and determine whether the project is financially and environmentally worth developing. In the beginning the numbers are very general and conservative. By the time the project starts construction, the numbers should be quite accurate.

Usually a developer will conduct his first feasibility study after he has tied up the contract through a purchase and sale agreement or an option to buy. The study researches whether there is a demand for the proposed development project and present and future competition. A lot of the information can be obtained from local planning authorities. Based upon the results, if the demand projection indicates there is a higher demand than what is currently available, then the developer assumes the project will be successful and should proceed with the development.

Most feasibility studies take into consideration needs legal issues, technical issues, financial and economic concerns and benefits and cultural needs.

Property Due Diligence:

Once the developer has decided to move forward with the project, his engineer or architect will draw preliminary plans and specifications for the development. This would include the layout of the project, buildings, utilities, and other site work. The engineer along with the developer if he prefers would then meet with local zoning and planning authorities to determine if the site complies with local zoning ordinances or whether zoning changes will be needed. Zoning compliance is extremely crucial to the development process and should be reviewed and analyzed in the very beginning of the development process. If during this property due diligence period any major hurdles or concerns come up a new feasibility study should be immediately performed to determine if the project should move forward.

An engineer’s cost estimate for the site work along with an architect’s cost estimate for the building are prepared during the property due diligence period. The developer will take these cost projections and create a cash flow analysis of the project based on the timing of permitting, construction, and finally occupancy. The cash flow analysis is part of a much more detailed feasibility study created at this time.

Bank Approval and Financing:

The developer will then obtain a development mortgage loan financing commitment once the initial plans and specifications are completed and a fairly accurate cost for the project has been estimated. The lender will usually request a copy of the preliminary market feasibility study, proposed project description, financial statements and any information about other projects the developer has developed. Development loans customarily provide funds to pay for the purchasing the site, permitting costs and construction costs.


Final Property Feasibility Study:

After permits have been awarded for the project but prior to actual construction beginning, it is in the best interest of the developer to conduct one last feasibility analysis of the project. The development costs should be quite solid and need very little revision. It is the market and demand for such a project that most needs to be checked at this point. It can often be a long time between the first feasibility study and this one and economics and demographics can change.

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Property Development

20.03.2010
18:12
0

The role of real property development in economic growth and development is well acknowledged especially industrial, commercial and residential properties that are key catalysts to accelerated economic growth and development.
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