How to Finance Property Development

In the wake of the recent financial crisis, banks have become more reluctant to provide development finance for property entrepreneurs. As a result of this, it’s becoming more difficult for would-be developers to gain independence from their 9-5 job.

High street banks of reduced the amount of buy to sell mortgages in their portfolio, while the small selection remaining may take weeks to be underwritten. The buy to sell mortgages available from high street lenders often require large deposits and can be restrictive with fees, rates and borrowing purpose.

In addition, buy to sell mortgages are restricted to properties that are deemed structurally sound and ready to live in. This means that if major renovation work is required, a mortgage is high unlikely to be accepted.

Standard mortgages are also unlikely to be accepted if the buyer doesn’t intend to live in the property. High exit fees means that these type of mortgages are not made for short-term borrowing.

With that in mind, even if would-be developers understand the rules of successful development and flipping, they may need to look elsewhere for a financing product suitable for them.

Bridging Finance

Bridging finance is specially designed for short-term lending of 24 months or less. As a specialist product, it’s essential to use a broker who understand the market and can accurately compare products from all short-term lenders.

The majority of short-term lenders may not be recognisable to you, but that doesn’t mean they are any less reliable than recognised high street borrowers.

Another benefit of bridging finance is that it can be made available extremely quickly. Because of this, bridging loans are a preferred method for developers who are buying properties at auction.

Lending can be underwritten by property and other collateral and may be considered based on the properties true value, rather than the amount paid for it. Because of this, higher loan to value funding ratio is available.

Bridging loans can also be arranged as a second charge. This helps developers to improve cash flow and complete stalled projects or fund multiple developments at a time.

Investor Partnerships

Investor partnerships and joint ventures are an alternative financing option. Partnerships are a good fit for developers without any capital or those who can’t obtain a mortgage. It’s also useful for new developers who would benefit from guidance or mentoring from experienced partners.

If all goes well, partnerships are a win-win situation for both parties. The developer gains access to the required funds, while the investor makes a return from a profit share agreement. You can find suitable partners through networking with like-minded people through training courses like Glenn Armstrong’s – http://thepropertycourse.com

With these financing options, property development remains a very real possibility despite the financial crisis.