10 Steps To Secure Property Development Finance

Starting out in property development like most business endeavour can start out to be lonely with more questions than answers.

There are many articles with a simple internet search, but hardly will you find one that directly answered your question without leaving you scratching your head.

Becoming a property developer can be one of the most rewarding business venture anyone can embark on, with the right knowledge and acquired skill set.

Without wasting your time on what you might already know, let's dive into the one we believe might differentiate the successful developer from the failure with respect to financing.

To improve your chances of securing finance for your property development, let's dive into the 10 steps that has differentiated the experienced developer from the rest.

1. Make Initial consultation with a lender

Most property developers start out by first making rigorous enquiry about the property. However, the approach we will suggest is having a budget that compares cost to value.

Find out how much you can afford to pay as a contribution towards the total cost of your project. This is usually 0%-30% depending on lender and experience.

Reach out to your lender to inform them about your search and how much you expect to borrow.

2. Compare deals from different lenders

Check with other lenders to see how your initial offer compares. This will give a better opportunity for you to have a more comparative advantage.

Using the same approach as step one, some lender however will require a lot more details than others.

3. Submit initial application

Get a partly detailed costing that includes the property acquisition cost along with other development cost. Ensure that this estimate is as accurate as you can possibly get.

Include in this, a miscellaneous cost which should normally be 10% off your total development cost (TDC).

4. Get an agreement in principle

At this point you should have decided on the lender you would like to go with. Get your lender to give you an agreement in principle that not only prevents you from losing the deal, but also show potential seller that you are capable of going through with the deal.

By doing this you will avoid wasting both of your time.

5. Visit the project site

Contact the estate agent or seller to arrange viewing and bargain the price to meet your expected property price.

Let the seller know you have an agreement in principle and bargain to reflect what you expect to pay for the property.

6. Professional valuation for Gross Development Value (GDV)

Get an independent professional valuation of the expected value of the property once it is completed and sold on the open market.

By so doing, you will be able to accurately estimate your return on investment (ROI).

This also helps you to re-evaluate your TDC.

7. Get a formal loan offer

Contact your solicitor and lender to arrange a formal loan offer and finalise the loan terms.

Getting a solicitor to draft this contract will not only ensure that your side of the contract is protected by law but that you do not miss the tiny prints going forward into the project, as you will/should be getting a legal advice.

8. Loan agreement and first payment

Once the loan terms have been finalised and agreed upon, your lender will deposit your first drawdown, this should cover the first phase of your project, such securing the land from the seller.

This will therefore mark the very beginning of your project finance.

9. Continued phased deposit by lender

As your project progresses based on your timeline, you should ensure that your lender is kept up-to-date on the latest development, to ensure your next deposit (drawdown) from your lender meets your deadline.

This will ensure that you do not run out of money and then do not over run your project timeline.

10. Loan repayment through exit strategy

Exit strategy is how you intend to repay your lender, through either selling off the property once it is completed or re-financing/mortgage. Ensure that you work towards your exit strategy through marketing and that you do this within the project timeline.

This is as important as taking the loan itself, as it ensures that you do not get payment penalties that will bite into your profit or potentially increase your TDC.

Conclusion

Consult your financial adviser, accountant or solicitor as this article is only to serve as a guide and this is in no way a guarantee for how things should be done or accept any liability.

Wish you a successful build.