Different Types of Finance for Property Development Investing in property development is the best possible decision one can make today. This is the best investment one can make and get returns equivalent to its multiple times. However, having ready money to develop or buy properties is hard for most of the people around. Thus, everybody needs to explore finance options for property development. One can opt for commercial mortgage loan for property development. However, the distinct advantage of a specialist short-term loan is that you get the funds quicker and over a shorter term.
Types of Finance Options for Property Development Let us now elaborately discuss the different finance options that you can find today. Senior Debt Loan This type of loan actually covers up to the first 80% of a property development loan to value. One can arrange such loan against gross development value with additional security. Interest payments can be deferred and regular drawdowns can be agreed in advance for small projects. This finance option has more seniority in the issuer's capital structure than subordinated debt. So, if the issuer goes bankrupt for some reason, senior debt theoretically must be repaid before other creditors receive any payment. Mezzanine Loan A mezzanine loan is similar to a short term bridging loan that enables to fund development costs on
one property while a developersâ€™ capital is invested elsewhere. They generally have higher risk and the monthly interest rates are also slightly on the higher side. However, this type of loan would allow you to achieve loan value of as much as 90% to 100%. Joint Venture Finance You can achieve 100% funding on a joint venture basis where property development finance is provided to underwrite the project costs and share the profits on completion. It is important that you have a clear legal agreement setting out how the joint venture will work and how any income will be shared is drawn up. Entering into a joint venture is a little bit risky affair. However, it also allows them to scale them up if a big or valuable opportunity comes to them. 100% Property Development Finance In cases where you have your own the land or your project is expected to make huge amount of profits, you might try to negotiate the bridging rate type finance or an exit fee based option without the need for a profit share. Your Required Credentials To avail the above discussed finance or loan options, you also need to have very strong credentials to secure a loan. The first of the required essentials is that you need to have a proven record of successful developments in the past. Second, you must have agreed â€˜off-planâ€™ buyers. Apart from that,you should also own a land and should have planning permission. You also need to show a speculative housing demand, when your project is completed. So, take advantage of the different financial or loan options available for property development. Act smart and try to secure the type of loan that best suits the requirement.
About the Author The author of this article is associated with Vision Finance, which offers Development Finance, Bridging Finance, Secured Loans, and Commercial Mortgages. Find more information, about property development finance here.
Published on Jun 23, 2014
Investing in property development is the best possible decision one can make today. This is the best investment one can make and get returns...