How to Finance Property Development?
How to Finance Property Development?
Property development is undoubtedly an exciting and diversified business sector to get involved in. Many people in Ireland want to get involved in the property development business but are reluctant to take the leap. They are ready to quit their 9 a.m to 5 p.m jobs to pursue a life of financial freedom. But most of them don’t have the capital of their own and are unaware of different funding options.
There are many options for funding different property development projects, but many people find the choice and their limitations quite overwhelming and confusing. These financing options depend on the nature of the project, the amount of capital required to complete the project, and the experience of the people involved in the project.
Suppose you desperately want to get into property development, but you don’t have a fund or hefty bank account just sitting there waiting for you. In that case, you need to understand how these various funding options work. There are plenty of investors out there willing to take a risk on your business or property development project.
Sources of property development finance
Some of the property development financing options to help new and aspiring property developers generate enough cash to start developing are:
A traditional loan is basically to get funding from the bank with a lower interest rate. The reason for their low-interest rate is an attempt to remain competitive. However, the duration to pay off the loan is longer, but the underwriting is quite extensive.
To get your traditional loan approved to develop your property, you will need to put a lot of effort and time into submitting the required documents that include details of your monthly income, design, drawings, and much more.
Many people are hesitant to avail themselves of traditional loans because banks usually take a lot of time to release the funds even after approval. Also despite what banks lead you to believe they are not that easy to secure and the amount of capital you will need personally to be approved, liquid or in assets usually rules this option out for most commercial development projects.
Private lenders can be anyone with access to capital and willing to invest in your development project. Their terms are quite easy to meet, but the duration to return their money will be much shorter.
Private lenders release funds much faster and easier than banks and institutionalized lenders but at the higher interest rates, around 10 to 15 percent.
Venture capitalists are high net-worth individuals or companies willing to invest in your development project if it seems attractive to them. They will provide capital for your development project in exchange for convertible debt or ownership equity.
However, due to their selective nature, it won’t be easy to receive approval.
Microloans are a good funding option for small business owners as they provide €50,000 cash to aspiring business people to develop their property. Due to the small amount, these loans are generally much easier to obtain than traditional loans. But you are unlilkely going to be starting your Monopoly empire with a 50k loan.
Money partners are individuals with access to capital which you may partner up with to develop your project. However, your development project must attract them to invest their hard-earned money in it.
If you lack the required capital for your development project, it is better to partner with someone who can finance your development project.
Real Estate crowd-funding:
Another funding option that has emerged in recent years is crowd-funding. It is a process that involves pooling together funds from multiple sources and people all around the world. It offers developers flexible terms and is immensely growing in popularity.
UpSpace is a reliable property development services company that works with many collaborators all around the world. It has gradually become the one-stop solution for every developer’s, small and big financial requirements in Ireland. With a vast network of potential investors, you will find funding for your development project, you just need to reach out.
Residential or Commercial property development?
An important factor that will affect how you raise funds to kick-start your development project is what kind of property you want to build: residential or commercial development properties have different funding options.
Residential property development:
Suppose you plan to build a residential property to rent out later to earn recurring revenue. It is worth looking at a buy-to-let mortgage funding option. Buy-to-let loans are calculated and offered based on the income-generating potential of the residential development project.
for developing your residential property if its income-generating potential is higher. If you don’t want to have to deal with the banks then a crowdfunded option is definitely worth considering.
Commercial property development:
Generating funds for a commercial development project is much more challenging as it involves taking a lot more risk. However, if you are a reputable property developer with a history of successful projects, many private lenders or banks will be willing to offer funds for your new venture.
If you are a newcomer with little or no history, it will be difficult for you to arrange capital for your project. But, with a strong business plan, good designs from an architect with plenty of details, and valid planning permissions, you will most likely secure the funding you need for your project. In this case you really are better of looking at a crowdfunded model if possible.
Developing property can undoubtedly be a great route to financial and business success. However, if not done right, without proper research, or planning it can lead to increased financial pressures and possible financial collapse. Property development is a complex area, especially when it comes to arranging capital for your project. Before determining what funding option will work best for you, take your time to assess how extensive your project is, how much time it will take, and how much it is likely to cost. To become a successful developer, it is necessary to be a good planner first. There are several funding options available for those ready to work hard, which is why “I have a property development plan, but I don’t have required funds” is no more a valid excuse to avoid developing your property.