Starting your first Property Development is not going to be easy. There’s only a certain amount you can learn from a book, at some point you have to dive in, even if the markets are not right and you’ve yet to find the right project. However, you cannot do anything in property development without the right funding to complete a project. I’m often told of the frustrations that newbie developers face when they try to find finance for their first project. Many are refused by ‘main stream’ lenders and banks because they have no track record. This makes finding finance a hard task.
Some find lending through an intermediary or Normanton Park Condo advisor who have access to ‘non retail’ products such as a self build finance and specialist renovation finance.
Why do we need specialist finance for property development?
Lenders do not take risks when it comes to lending on property, why should they? They have shareholders and members interests to consider. So it’s normal to find that the majority of lenders do not lend on property that is uninhabitable or derelict. There are a few reasons for this; firstly for an investment to be secure it must be insurable. Vacant properties are hard to insure so this puts the lenders investment at risk, something they won’t do.
How is Property Development Finance Different from traditional finance?
It’s common for property development finance to be given in stages. Normally the stages are based on certain phases of the development being reached such as, land purchase, roof and completion. This is why it’s important to prepare a business plan for each of your projects outlining the costs of each stage that the lender will pay on. It’s worth remembering that the final payment is only released on completion of your project, by which time you would have built up some significant costs. Because of this you need to agree payment terms with your building material suppliers. Also make sure your main contractors are aware that their final payment could come a few weeks after completion. In my experience most are OK with this as long as you tell them as the start of the project.
Where can I find Property development finance?
I would always work with a professional mortgage advisor to get these sort of products properly researched. Now I know I’m not a professional advisor and I’m not offering advise here but for more information on where to find property developer finance try looking at our article here which covers all aspects of the application stages and what lenders are looking for before they invest.