Property developers also require financial support with their projects, to enable them to keep expanding their career.
Property development can cost a lot of money, as there is so much that needs to be considered within the project.
Experienced property developers have a good idea of how much each project will cost them, and what they will need for it, from builders to plumbers, they must ensure that everything is covered in their appraisal.
This becomes very costly, especially if you want to give the property a high value.
This is where property development finance options come in, to help provide a financial solution to either kick start the project or be used throughout, to get it all completed.
Things to be Considered with Property Development Projects
When it comes to property development, this is anything from building a property from scratch to renovating an existing property.
No matter what the property development project is, it requires a lot of money to be able to get it started and make sure it’s completed.
Below, are some of the things that would need to be considered with property development projects, that would need financing:
Firstly, like anything relating to changing a property, you need to plan it out.
Most property developers should be able to do this themselves, so it may not always cost extra money to do the initial planning.
However, something to be considered is planning permission that may be required to get.
Many things may need to be approved to go ahead with the property development in the first place—even things such as creating streets and curbs for where the house is going.
There’s a lot to be considered, and some of it may cost money before the actual project has even started.
Property developers also require services to complete the property development project.
The property developers main job is to plan the project out and supervise it all, so services such as builders are needed.
A lot of the time, property developers will have connections with people, that they regularly use for their developments.
Some of the services to be considered is builders, plumbers, electricians, decorators, gardeners and things such as creating driveways and curbs to give them access from the street.
All of this adds up to a lot of money and is the main part of the property development project.
Without these, there would be no project, but it is something that property developers may need some financial help with.
Furnishing and Decorating
Once the property has been built or renovated, it, of course, needs to be furnished and decorated, to complete the project altogether.
This is something to consider as an additional cost on top of everything else and ensure you have enough money at the end of the project, to be able to do this.
It may be buying the furniture or paying a decorator to finish it off, whatever it is, it’s an additional cost to be considered, to complete the property development project.
Now it’s been considered what goes into a property development project; it’s time to think about how much it will cost in total and how this will be funded.
During the planning, property developers will work out how much the project will cost and from there, be able to work out how they will fund it.
Finance Options for Property Developers
This is where the finance options come in, for property developers.
We’ve had a look at all the work and money that goes into a property development project, and it’s quite apparent that financial help is needed to help property developers complete the project.
High Street Mortgage
This is a basic mortgage, available at banks and the application is based upon the ability to pay the loan back and the value of the property.
This type of finance option is best for those that plan to live in the property, whilst carrying out work on it as it will most likely not be available for commercial use.
Second Charge Mortgage
If a mortgage has been taken out on the property, then a second charge mortgage can be taken out on top of this.
This is also secured against the value of the property and with this one, you don’t need to be living in the property, to be able to get the loan.
This is just like your standard, fundamental mortgage, but instead, is used on commercial properties.
If a property developer is working on a shop, office or factory etc., then they would be able to take out a commercial mortgage to help fund it.
This is a more widespread, financial option amongst property developers, that are renovating or building a property to rent it out once the project is completed.
The interest rates tend to be higher than a standard mortgage and includes additional fees and a large deposit to start with.
It is essentially getting a mortgage on a property that is planned to be rented out, once the property development project is completed.
This is by far the most popular option used by property developers, as it doesn’t require having a mortgage for years on a property.
A lot of the time, the property developer carries out their project, with the intention of either selling the property or renting it out. Therefore, they plan to make money from it, once complete.
Residential and commercial bridging loans are available, and it is a short-term loan, where a large amount of money is given and then paid back, usually within a year.
There are high-interest rates and additional fees to be paid on this as well, but usually, it’s a quick way to get money and then it can be paid back by selling or renting the property.
This is like the standard bridging loans but instead used only on rental properties.
So, we have had a look at what it takes to complete a property development project and what finance options are available to property developers, to help fund their projects.
Bridging loans is the most popular with property developers, as they are a lot quicker and easier to get and payback than a mortgage would be.
Property Development Finance
A specific loan for property developments, it is a short term loan that is usually disbursed in stages of the development.
The interest rate is calculated yearly and can be quite reasonable compared to some other options in the market.
It is available by specialist lenders in the market, although some banks also offer development finance, their loan to value LTV will be around 65%. In contrast, the specialist lender can go up to 85%.
For more information on property development finance, see here.
Adiel Khan has over 20 years in the property finance market has and advised and financed property developers, investors, landlords, and builders throughout the UK.
Adiel is also an experienced business advisor, supporting over 5,000 businesses in London to help businesses expand. He runs a business start-up blog startinbusiness.co.uk
Adiel is co-owner of Property Finance Partners which offers structured finance for property developers and investors in the UK.
For more information, you can contact him at firstname.lastname@example.org