How to Obtain 100 Per Cent Property Development Finance


If you are a newcomer to property development, one of the problems you may encounter is that lenders are usually not willing to lend you more than 70% of your project costs.

However, even if you have no idea how you would go about raising a 30% deposit, there is no need to be totally discouraged. You can find ways of getting hold of 100% property development finance, even as a newbie.

  1. If you already own the land, and just need to raise finance for the development, lenders are more willing to consider higher loan-to-value amounts – possibly even up to 100%.

  2. If not, the first step is to explore whether you have any other property that can provide additional security. For instance, if you have paid off all or most of the mortgage on your own home, or if you have a holiday home or a buy-to-let property, you could use these to raise the other 30%. This is clearly not something to be undertaken lightly, but if you have done your sums and are confident of the viability of your project, it is something to consider.

  3. It is sometimes possible to find a site that you can purchase at bargain price. If you can demonstrate to your lender that the market value is higher than the purchase price, they may be willing to lend against the market value rather than what you actually paid.

  4. Another possibility is equity funding, where an investor lends you 100% of your project costs in return for an agreed stake in your final profits. Although they may insist on up to 50% of your profits, the big advantage is that you don’t have to pay any interest up front. This can be an excellent way for a newcomer to embark on a first project.

  5. Alternatively, another idea is Gross Development (GDV) lending. Instead of the loan being based on the current value of the site, it is based on a forecast of the final sales value of the completed project. Obviously the forecast would have to come from a professional valuer or surveyor.

  6. There are some specialist lenders in the property development market, whose expertise enables them to identify the profit potential of a particular project. If their assessment is favourable, they might be willing to provide a higher Loan-to-Value amount.

  7. If you are developing a brownfield site, you stand a much better chance of 100% property development finance, as government policy requires greater use of brownfield sites and encourages development.

Starting off in property development is never easy, but the rewards are great if you can stick at it and prove that you know what you’re doing. If you can use one of these ideas to get your business off the ground, obtaining property development finance the next time round will be much easier and your business will be up and running!


 

Please note that the FSA do not regulate commercial loans or commercial mortgages

Bookmark with: Facebook  Delicious  Digg  Reddit  Stumbleupon