How To Finance Property Development
To be a successful property developer, you need a large number of funds. It should always hit you that, if you haven’t sold your first property then, your money will not be of help since you will not be in a good position to develop and expand your business. It is therefore important to ensure that you have sufficient amount of funds all along.
For over 20 years sale of property and leasing has been deemed to be very profitable but proper management must have been put in place.
Letting out of the property can be difficult especially when you buy property where there is no demand for tenants in the area leading to two or more months without any rent paid, this means that mortgage payments will be delayed with the number of months that the rent has not been paid.
Before getting into the property development, you should ensure that you have a good idea of the local market and also the refurbished property should meet the demand of the buyers of the property to make them buy the property. It doesn’t make sense building family home in an area with students.
When you are certain and want to have a start, it is advisable to consult finance brokers experienced in the field to give you the advice regarding first-time developers and landlords.
Sometimes mortgage brokers have no knowledge regarding finance and they may refer you to more experienced persons.
There are several factors that you should consider and check into and are outlined below in stages.
Getting knowledge of finance
It is crucial to understand that finance lent against your property is available in various forms depending on the main property being identified.
Residential mortgages are cheaper than other mortgages and should be for people preferring to live there, the second cheapest mortgage is buy to let and should be selected when planning to rent out the property.
When dealing with buy to let you can have multiple houses and make different renting agreements with the tenants.
Commercial mortgages are more expensive and are for those mortgages that have business operations taking place.
The gap between the cost of moving to a different house and the cost of selling your previous home can be met by bridging finance but this was mainly done years ago.
Bridging finance is offered to cover the cost of selling a property if you have bought a new property without having sold your current home. Over the past seven years, bridging finance has changed and has grown to professional banks, besides this small lenders are still providing bridging finance loans.
In the past decade, you could get a 2.5 per cent a month for a bridging loan. But now, depending on your investment, the people lending can charge as low as 0.6 per cent plus an agreement on the fee which mainly is 1 to 2 per cent of the loan.
In a place where there is a current development that needs to be replaced with a new one, a development finance is invested in.
Beside bridging and developmental funds, there are a number of other funds such as a bridge to let, light and heavy refurbishment funds and finance dealing with auctions.
Doing up a dive
Taking either a light or heavy refurbishment loan is always an option in which you do a repair which you later sell
The loan paid has a 0.6 to 1.5 per cent every month but the rates depend on the agreement of the deal. A deposit of 25 per cent is a requirement since most lenders issue 70 to 75 per cent.
Besides the loan being issued on an agreement, the higher the deposit the lower the rate. It is important to clear the loan within the time frame since some lenders charge an extension feeAmount of loan is valued depending on the current value of the property or speculated value of sale referred to as gross developmental value.
Tips to increase the investment budget
- 1. To buy at a cheaper cost or reduce the amount of rent move to a smaller area
- 2. Reduce the expenses, for instance, sky T.V is £360 per year while the gym is £720 annually.
- 3. Make an automatic transfer of at least a third of your wage that will be saved till when you need it.
- 4. Check on how your daily spending and at least lower it a bit, by this, you can get at least £5 per day that amount to £1800 in a year.
- 5. Earn more by starting a small business or do freelancing in the evening by this you increase the number of funds.
Property development is not something small, to succeed in it you need to sacrifice a lot.
When you are still in the process of starting a property to develop, read a lot and as many people as possible to increase your understanding
Growing a Property portfolio VS Starting a Property Business
There are two different approaches to property investment. One approach is developing a portfolio
The second approach is investing in property with a high cash liquidity that you can scale. This approach needs a large number of houses under your investment.
Types of investment strategies and property and how to choose from them
- 1.Corporate buy to let and self-amenities model. The houses have many occupants
- 2. There is purchase for let, rent to rent and buy-repair-sell
- 3. Property houses should not be limited to purchasing only, you can go to the field and find property being sold at a cost lower than the market value for other investors.
- 4. You might try venturing into being a property expert or an auctioneer
- 5. You can try joint venture in property where a partner brings in money, you make the investment and later share the profit on an agreed rate.