How To Finance Property Development?

So, you have found the perfect plot of land that is just waiting to be transformed into something amazing. You are pumped up, but you don’t know how to pay for it. Property development can be exciting, but it requires a lot of money up front. Thanks to property development finance, you can now relax. 

At Mayfair Commercial Mortgages, we help investors and developers find the right funding to turn their property dreams into real projects. We will cover everything one should know about development finance. We want you to make the best choices possible when financing your next project.

What Is Property Development Finance?

Property development finance is a type of short-term loan specifically for property projects. It is meant for businesses that want to develop rather than just buy property. That is where it is different from a regular mortgage.

There are different types of development finance. Let’s talk about 3 of them:

• Bridging Loans: This loan is ideal for short-term funding. People use it to buy property quickly before longer-term finance is arranged. It’s temporary.
  

• Development Loans: This loan is released in stages as the project progresses. It is used to fund the actual building or renovation work.
  

• Mezzanine Finance: It is a smaller and secondary loan. A mix between debt and equity. It is mostly used to fill funding gaps when you need extra cash to complete a project. 

Why Property Development Finance Matters

Property development is rarely cheap. You will need funds for land purchase, construction, materials, and professional fees. Unless you are a billionaire, this amount of money can be hard to arrange. 

Property development finance solves the problem of cash flow. It provides the money needed to get your project off the ground before any sales income starts coming in. Even the best projects can stall halfway through if you don’t have financing. 

It gives you enough money to buy, build and finish your project successfully.

How To Qualify for Property Development Finance

Getting approved for property development finance is not as scary as it sounds. However, lenders do need to see that your project is profitable for both parties. 

At Mayfair Commercial Mortgages, we help you prepare so your application stands out to lenders.

4 things they want to see:

• A Solid Plan: Lenders want to see detailed plans and timelines. Your project has to look organized. It will give the lenders more confidence in your work. 
• Experience: Experience matters everywhere! If you have managed development projects before, that is a green flag. Don’t stress if you are new. All you need are some good advisors to get you through.  
• Good Credit and Equity: Lenders want you to contribute some of your own money. This shows your commitment. It is also reducing their risk. 
• Exit Strategy: Lastly, you will need to show how you plan to repay the loan. This is the rule for every loan type. They will ask if you will repay by selling the property or renting it out.

Steps to Secure the Right Funding

We know you cannot wait to start your property development. So, here is a general roadmap to getting your property development finance sorted:

• Define Your Project: Know exactly what you want. Have a clear sketch of what you want to build.
  

• Estimate Costs: Take all expenses into consideration. Include land, permits, materials, labor, and unexpected expenses.
  

• Get a Professional Valuation: This helps lenders understand the project’s potential value.
  

• Apply Through a Broker: Companies compare lenders and negotiate the best terms for you. Expert help can make the process so smooth for you.
  

• Review and Sign the Offer: The hard step is just to get it approved. Then, the funds are released in stages as construction progresses.

Summarizing the Features of Property Development Loans

• An initial advance covers the start of construction. The remaining money is released in stages as you hit specific development milestones.
• The loan amount is based on the Gross Development Value. Most lenders will offer you between 60-70% of the project’s GDV.
• The principal is repaid after development is completed. The interest is paid monthly or rolled up to be paid at the end of the project.
• The lending term is between 12 to 24 months. It can extend up to 36 months.
  

Conclusion

Property development finance is more than just a loan. It is a partnership that fuels your vision. Financing property development feels overwhelming, but it does not have to be. You can turn your ideas into successful projects with the right planning.

Ready to bring your project to life? Contact Mayfair Commercial Mortgages today to explore flexible financing options that work for you. Our trusted team will be helping you secure the best possible deal.

FAQs

What is the best way to finance a project?

You can get traditional loans from the banks or government grants. Equity investments from private investors and project bond financing are also some ways. 

Can you get 100% development finance?

Yes, you can get 100% development finance! It is structured as a joint venture with a funding partner. It is different than a traditional loan.

How much are the lenders willing to finance?

Lenders determine the loan amount based on the Gross Development Value. It is the total estimated value of the project once completed. It is usually between 60-70% of the GDV.

What is the meaning of property finance?

Property finance is the process of securing funding to purchase/develop real estate. The property itself is used as collateral.

What are the main things I should consider before applying?

Sometimes, lenders want to visit your building under construction. He will assess the progression of construction before releasing the stage payment. Moreover, the documentation phase is absolutely necessary step.