Property development is one of the highest returning businesses. This industry is filled with experienced professionals who have already established a stable business. Many new developers crash at the beginning trying to make their place in the market due to this competition. Not only do they have to reach the level of their experienced competitors, but they also have to manage with a little to no investment. It’s the least of your worries to arrange finances if you have an established setup. On the other hand, newcomers will find it quite challenging to borrow money to invest in their projects.
Lenders want to invest where they are likely to get profit with the least risk. Whether you offer them a share or an interest, they won’t get any of it if you fail at your project. They will invest for lesser profit if you can assure them that you are a safe and reliable person. Lenders invest on people that know their field. If you are a property developer, you have to prove that you have the skills to successfully execute the project keeping every promise made to investors and other actors involved.
If you are new to this business, it is suggested to visit https://www.propertyfinancepartners.com/property-development-finance/ to learn more. In this article, you will find suggestions to deal with financing difficulties and sources that are best to help you in property development.
Create an Experience Profile
What is the first thing a lender wants to know about the borrower? The answer is “experience!” If you don’t understand how a business works, you are likely to doom it. There is no shortage of people who want to start a business, and there are plenty of people with money. Investors and lenders give money to those who don’t just have ambitions but also skills and experience.
Create a track record to show to potential financiers. If you don’t have any prior experience, it is suggested to first get some practical knowledge before you jump into starting a business. Professionals who hurry towards business without gaining proper exposure usually end up in failure after a short amount of time. This will not only benefit your financing but also enhance your skills.
Work with an established property developer to gain experience. Work on projects that you can proudly present. Having an experience profile with noteworthy projects and references will create a good impression on potential investors. They won’t mind financing on your skills if they believe in them.
Prepare a Report of Estimated Cost
When you go to a financier, go prepared because you may not get another chance with him. Wearing formal isn’t enough when it comes to preparation. You need to show that you have done your homework on the project where you want him to risk his money. Prepare a comprehensive report of all estimated costs and how much return should one expect. Don’t try to make it attractive by showing misleading numbers.
This report should be research-based and have real stats. The investor will scrutinize them and make the next decision according to them. It might be considered fraud if he feels you are trying to trick him. Your report must include the following information.
- Cost of land and construction
- Marketing and agents fees/commissions
- Costs of the architect, engineering, legal professionals, etc.
- The profit margin
- The potential gross realization
Property Development Loan Application
Once you have presented the estimated cost and profit, you will be asked how you plan to achieve these goals. The best answer to this question is a plan. Before you start a business you have to consider all the factors involving risk and benefits. As a leader, you have to know how to tackle all of them to achieve your desired goals. If you studied the property development business, you should know where to and how to begin. Create a roadmap of the entire development process and how you will get around each problem. If you have an infallible plan, there is nothing that can stop you from getting those finances. The cost estimation and your plan to execute the project are a part of the loan application. Make sure you also mention the following information.
- Your role in the development project
- Your experience in development
- The equity you bring to the project
- Type of the development project with description and zoning
Study the Local Market
If you are starting this business, you have probably spent a significant period of time in the industry. Nonetheless, make sure you have thoroughly studied the local market. This means knowing everything there is to know where you plan to start your development project. This research will also provide you information about the potential lenders and their experiences with property developers. It will assure your lender if you have more information to provide. You will have to prove that prices you offered are reasonable compared to the market cost. If possible, create a graph or chart to show you can do better work than others in the market.
Where to Find Investment?
There are many institutes and individuals that provide finances in return for interest or a share. Arrangement of investment is a problem for those who are just getting started in the business or have a terrible record. It shortens the lists of potential lenders, but there are still many who would provide 100% development finance.
Banks and other organizations may not accept your application, but private lenders are more prone to taking the risk for a higher return. There are many private lenders in the United Kingdom who particularly invest only in property development.
They are called angels because they offer you support even when everyone else has rejected your proposals. If you can impress them with your plan, angel investors will provide you the required capital in return for ownership equity or convertible debt.
Find a Partner
If you are unable to find anyone to finance your property development, a more achievable practice is to find a partner. A partner may cover 100% finances or a part of it depending on your agreement. It most certainly gives you an extra brain that also has the same goal as you.