Posts Tagged ‘Development Finance’

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.

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.

Related Blogs
© Property Development|Real Estate Development|Institutions|Economic Development
Powered by WordPress and Artsavius Theme
Entries (RSS) / Comments (RSS)