Most of us see property developers as people that can easily make money without having too much experience in the field. It is believed that everything you have to do is just buy a couple of buildings, flats or houses, set them up, and sell or rent them out for much more than the initial price.
However, it is almost nothing like that. There is a lot more involved when it comes to becoming a property developer – much more if you also want to be a successful one.
The most important thing that you have to take into account is the capital – the development finance that you’ll need to get your hands on in order to be able to make money out of your investment.
After all, if you don’t have enough money, to begin with, you won’t be able to move on forward with your plans. Therefore, you will have to look for some options to help you secure the funding needed for property development.
If you are searching for more information on raising property finance, then you’re in the right place! Keep on reading and we’ll tell you everything on how to raise capital for property development.
The Property Development Markets
Given that houses have increased in price over the past decade, investing in property is seen as a rather safe option in terms of rounding up some profit.
Still, this doesn’t mean that you can dive into the market without doing some research beforehand. As you will most likely rely on an investor in order to raise capital, you must make sure that your plan will have a big return.
Furthermore, if we look at the UK’s house prices, for example, we notice the fact that they have been on the rise in recent years. Thus, they make great opportunities for any entrepreneur that wishes to become a property developer.
Again, you’ll have to do your research and make sure that your investment will be safe in the long term. In this respect, we mention certain effects that Brexit might have on the property market – however, this applies to the UK only.
Now, let’s see how you can raise capital for property development!
One of the first funding options you’ll probably investigate is commercial finance. Those that can provide you with such finance will consider both your financial circumstances and requirements in order to work out the best lending options for your plans.
Even though you can rely on various lending options, it is recommended that you use a service that is designed around and for property development because this service will hold more benefits for you.
Let’s say that you plan on getting into property development that doesn’t involve residential property – for example, you wish to invest in warehouses or shops. In this case, you can rely on a commercial mortgage.
Overall, this option to raise capital works pretty much just like private mortgages. Commercial mortgages can be used to both buy a property for your own business or to buy a property that you’ll sell later.
The main advantage of a commercial mortgage is that you can spread the total cost over a longer time period, thus making it more affordable. However, keep in mind that it might be difficult for you to get one if you are a solo entrepreneur or involved in a start-up.
If you have a residential or commercial property in mind, then a buy-to-let mortgage might be the best option for you, mainly because it is fit for large scale projects, so to speak.
However, you must keep in mind that, if you’d like to do more with your property, you will most likely be required to search for additional funding.
Still, buy-to-let mortgages represent a great option in terms of raising capital and they sometimes come with more favourable rates.
If you are on a really tight budget, then you can also rely on property auctions, as they are some of the best places to find a bargain. When buying at an auction, it is important that you either know what you’re doing very well or put your trust in professional services that can ensure you of the best outcome.
There are more than enough lenders that are specialised in auction finance and they will always make sure that the finance you requested gets to you on time.
Public Sector Options
You could also rely on some options found within the public sector, such as leasehold, crown build, private developer scheme, and private finance initiative.
Before choosing one of these, it is recommended to research it and determine whether it is indeed a viable funding option or not. As always, do not look just at the benefits – take the risks into consideration as well.
Also known as short-term funding, bridging finance is very helpful when it comes to covering other costs that are related to property development – for example, development work such as fixing a bathroom, kitchen, and so on.
As you can see, you have quite some options that can help you raise capital for property development. You can also rely on friends and family to chip in if they are willing to do so – you might even be eligible for a better, safer option if you have their money at disposal.
In any case, keep in mind that both market and funding research is required beforehand. The market may be rich and prone to success, but you have to be careful when making any decisions so that you don’t ruin your plans before even starting developing a property!