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How Do Property Developers Raise Money? Uncategorized

There are a few things that property developers need money for when it comes to their projects, and it can add up to be a lot of money. 

This is where they would need to raise money and find a financial solution, to help complete the project. 

Property developers have several options on raising finance for short term projects; these include development finance, remortgaging, bridging loans, joint venture partnerships, secured and unsecured loans from high street banks. There are many private lenders throughout the UK ready to finance property developers’ and their projects.

Below is just a few things that a property developer might require finance and money for:

Land-To start off, any development project, you first need land to build on. This is something that most developers will already have; however, they may want to use a finance option to purchase more land.

  • Materials-

Materials are very much needed for any development project. It’s all the things that build and make up the house. From bricks to windows and doors to floors, there so much to include. 

It is an expensive project and depending on the size of the development, depends on how it’ll cost. 

The developer should consider everything that is needed for the development, including all materials and how it costs to purchase them. Finance is used to help fund this, as it can come in no small amount of money. 

It’s usually not something you will have the money for and therefore, will need to borrow some or get a finance solution to help out.

Some of the things included in development include:

  • Bricks 
  • Windows
  • Doors
  • Flooring
  • Electrical systems
  • Water systems
  • Drains
  • Street development and curbs
  • Gardening development 
  • Heating systems 

This is just a few things that need to be bought considered and purchased for property development.

Paying for Services-

Along with the land and materials, the developer will also need to pay for services. This is for things such as plumbing, adding in water systems, electrician etc. to come and fit everything into the house. 

It’s something that a lot of developers and builders can’t do themselves and therefore, need to pay someone to do it for them. 

It is likely that they will have regular people that they always use for this, but when you add everything up and paying someone to come and fit and install something, it becomes expensive. 

Finance is used to help pay for this and avoid any delays in the property development project.

Some of the services that might be included:

  • Plumbers
  • Builders
  • Electricians 
  • Gardeners

This is just a few things that need to considered and purchased for development purposes. 

It’s a lot to think about and be included, so this is why a finance solution is used, to help out. 

If the developer doesn’t have the funds to purchase everything needed for the build, then it can add delays to the project.

How Can Property Developers Raise Money/ Finance?

When looking at some of the things required for a property development project, it’s obvious to see it costs a lot of money as a lot of supplies and resources are needed. 

A lot of the time, property developers won’t have all the funds required and therefore would need to raise money from somewhere. 

This is done through financial solutions that are there to help out property developers with their projects.

  • Savings-

Sometimes for property development, it is possible to use personal savings to fund the project. 

In some cases, the development is renovating an existing property and therefore, it doesn’t cost as much as full property development. 

In this case, it can be possible to use personal savings to fund the project. As a result of it, it adds value to the property and therefore makes money from it.

  • Remortgaging-

Remortgaging an existing property is a possible solution but often only used on properties with a large amount of equity behind them. 

However, for property developers, it isn’t the best option as it can affect their funds and financial history.

  • Further Advance-

This is where you ask for an advance from the lender and is usually offered on a standard mortgage. It can end up being expensive, so might not be the best option for raising money.

  • Mortgage-

A mortgage is a way of raising money but isn’t commonly used for property developers as it requires having it for an extended period of time. 

So, for property developers, if they plan to sell the property once completed, this wouldn’t be an option. Which, in most cases, is what property developers do.

  • Joint Venture-

Joint venture with an investor and the property developer is an option, where both hold shares in the property. 

A shareholder’s agreement is put in place, where both the investor and property developer will agree on terms. 

The investor will then help contribute towards the project, financially and once sold, will make money from it. 

  • Property Development Finance-

The most popular choice for raising money is property development finance. 

This is a short-term loan given to property developers and builders, to help with the development project. A large amount of money is available through a lender, that is to be paid back within a short amount of time. 

This is a good option for property developers, as they can quickly get access to large amounts of money for their property development project.

Find out more about property development finance.

Then once the project is complete and the property is sold, the money from it is used to pay the loan back.

Unlike mortgages, it’s short-term, so it’s paid back and completed within a short amount of time, instead of having years and years to pay it back.

There are several ways for property developers to raise money for the projects, and once the project is complete and sold, they make a profit from this which can help towards the next one. 

However, it can’t fund the whole project, so this is where a financial solution comes in to help out. 

For most property developers, large amounts of money on a short-term basis will work best. 

As once the project is completed, the money from the sale pays the loan back. 

As well as this, joint ventures are also a good option for property developers to team up with an investor that can help them out financially. However, this means they won’t get as much profit from the sale. 

Property Finance Partners has vast experience in supporting property developers in the UK raising finance for their projects. If you are looking for finance for your project contact us on 020 3393 9277 or email [email protected]

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