From Planning to Completion: The Funding Journey Behind Property Development Projects

Property development has the potential for significant profit, but is at the more complex end of the property investment spectrum, and as such comes with more risk. 

Building property has the potential to achieve an ongoing income from a retained and let property, or to make a profit after costs by selling the property (or properties) that you build. There is a huge amount of planning involved, and it is vital that you know how to keep the build progressing smoothly and to budget, so you don’t cut into your profit margin. 

One of the most important areas to consider for any property development is raising the money. If you don’t have the capital to pay for your project yourself in full, or you want to leverage borrowing so you own money is not completely tied up, you will need development finance. 

The Planning Stage

Planning is key to any kind of property project, but particularly so with development finance. There is a lot of complexity to ensuring various elements mesh at the right time and delays or errors do not arise. It is important to establish what your goals are for the build and calculate the costs to establish an accurate budget. It is wise to include a buffer of at least 10% for unexpected costs, which often arise with property projects. 

Once you have worked out the costs and the potential return on your investment, and you are confident you can achieve a worthwhile profit margin, you can start to investigate whether the cost of borrowing is also viable. 

The Role Of Development Finance

Development finance is the appropriate borrowing solution for ground-up builds. If you are a property investor looking to sell on or keep the property and rent it out, you will need an unregulated (suitable for property professionals) development finance product.

If you are building your own home, you will need regulated development finance. Regulated products offer consumer protections, because it is accepted that you may not have experience of property finance.

Development finance is a short-term product that allows you to borrow from £30,000 with terms typically between 12 and 24 months. Additionally, funds are usually released in stages as the project progresses, which can make it easier to manage cash flow while reducing risk for the lender and developer. 

Securing Permissions and Managing Regulations

Before breaking ground, you must always make sure that you have secured all necessary permissions and are compliant with regulations. This can involve getting planning permission, compliance with building regulations, and considering safety requirements.

Keep in mind that many lenders will require evidence of permissions and regulatory compliance before funds are released, so having documents ready can help avoid delays. 

Managing Cash Flow During Construction

One of the biggest challenges of property projects is managing cash flow during the construction project. This is a time when spending can feel chaotic and out of control if not planned effectively, so it is essential that you have a system in place to monitor and manage cash flow. 

The funds for development finance is released in stages. A proportion of the total loan is initially released to enable you to buy the land, then tranches of money are released on a schedule during the build. Along the way a surveyor representing the lender will check on the progress of the construction. 

Completion And Refinancing

During the planning stages you will have decided what you want to do with the property on completion. When it is finished, you will either be marketing the property for sale, or paying off the development finance with your own funds, or a mortgage, so you can let it out.

Selling the property will give you access to the capital from your profit. Keeping the property and letting it out (whether it is a home you will let to residential tenants or a commercial premises that will be used for business operations) will give you a regular monthly income on an ongoing basis.

Getting Specialist Advice

Ground-up builds are amongst the most complex property projects to get funding for, so it makes a lot of sense to get specialist advice.

You will need experienced professionals to get the physical work done, from an architect to design the building, to construction teams, a project manager, electricians, plumbers and more. If you are inexperienced the help of professionals will be required by development finance lenders.

Specialist brokers will have a detailed understanding of development finance, where a generalist residential broker is unlikely to. Mortgage brokers can find a product that suits your needs and circumstances, whilst also achieving the most cost effective option within those boundaries. What’s more, they will take all the administrative work of your shoulders so you can focus on the practicalities of the build.

Thorough research, effective planning and a contingency budget are key pillars of property development, hopefully this article has highlighted how to get started.