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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