There are many factors to consider before taking out any property development finance for any project type. In order to make a profit on any property development project, one needs to understand all the costs involved throughout the whole process. This includes the costs involved in purchasing the building or land in the first instance, and then all the development costs and all other associated costs that go with it.
In order for the developer to make a profit on the project, the potential selling price of the project needs to be assessed very carefully. I say very carefully because the duration of the project can vary considerably from start to finish. Therefore, you may have projects that have a 3 or 6 month initial timeframe, and some which may be a few years. Within this time, factors such as building costs (and any professional costs and taxes) and economic conditions can change. So these elements may have to be also considered from the start, which can eventually turn a potential or projected profit into a loss.
Many types of finance exist which can serve different elements of any property development project. For example, banks and lending institutions tend to offer finance just for your building costs. Also, if you are staying or intend to occupy your development project, then there is also residential mortgages which are available. However, when taking out a mortgage, this may not take into consideration all the building costs involved.
There are also other types of finance available – such as short term bridging loans -, with each financing type appealing to different developers. I think it also matters on the experience of the developer. More experienced developers may be able to utilize the cheaper costs of finance more effectively, compared to say a novice developer.
Once the profit potential and all the required costs are worked out, the next step involves in convincing the banks or lending firms to lend you money. Depending on the size of the project or the amount and type of finance you are after, one effective way of improving your chances of obtaining property development financing is by presenting a detailed business plan to your potential lenders. A good business plan should improve your chances quite considerably in the eyes of a potential lender. What does a good business plan need to have. First of all, once all types of costs and expenses have been estimated, you then need to decide how much you will need to borrow.
As briefly mentioned above, I should also mention that you may need to take into consideration other factors that may or may not influence future costs rising. This includes things like your interest payments, the value of the property may rise or fall over time (in relation to the postcode and other factors such as a proposed motorway close by!), inflation and so on. Therefore, care needs to be taken when constructing a business plan for potential lenders.
In order to obtain property development financing for multiple properties at the same time, then constructing a viable business plan can become a lot more complex. More research may need to be done on all the various possibilities (forecasting of current and future costs, final sale prices, taxes, any potential issues being financial or non-financial etc) occuring over the lifetime of the loan, mortgage or other type of finance. This may involve a lot more time putting all the information together, so again extra care needs to be taken when estimating all the different types of possible costs and final selling prices or profits to be made.
