How to fund your project using property development finance?
The real estate market development in the recent years, as well as credit market opportunities, encourage property developers to require more and more financial aid, mainly property financial finance. This type of loan has become very popular among real estate investors, many of them requiring the services of various lender companies in order to develop their projects.
When you initiate a property development project, the next think you do is to look for a source of financing, establish the sum of money you can borrow and think of how to manage the total costs of the development. Whether you are a beginner when it comes to property development or a professional property developer, you should understand what this type of loan is and to look for a bank or lender company that will help you fund your project. You will probably have to find a lender company that will approve the property development loan, because banks are not so eager to offer this kind of loan and you will have to assure you with more than the security of the project. On the other hand, lenders are interested in their own safety, that’s why they will evaluate the risks first: whether you are able to repay the loan and also whether your project is viable.
Depending on the lender company you choose, you may receive a financial aid that can cover up to 80% of the total cost of the project and the rest of the funding will be covered by you or by your partners. The financial aid received by the borrowers is known as Loan to Value Ratio (LVR), meaning that you can receive a certain percentage of LVR depending on the type and the size of your project. Lenders classify the property development projects in two different categories: residential property projects and commercial property projects, according to which they will require from you a contribution of 20% or 30% of the total cost of the project, regardless its end value. For example, let’s say that your property development project cost is $1 million, so you will be expected to cover the rest of the project cost, meaning $200,000 to $300,000.
Depending on the stages of your project, lenders can provide you different types of lending:
– Loan for the acquisition or the development of site, as well as loans that cover pre-construction costs;
– Loan for the construction
– Loan for investments, in case you want to retain your project.