If you have the urge to get into property development or building development, whether for a string of properties which you intend to sell on or for a single property in which you wish to settle, then you need to consider finances. Money is the one big factor for your project, as this is where the funding will come from in order to get the job done. If the money dries up before the project is complete you could find yourself stuck.
Cost and budget is something you can plan down to the finest detail, but you should always ensure you have extra money aside for the unforeseen hiccups which often occur. So what are the different ways in which you can fund your project? Well, in this article we’ll discuss a few of the ways in which private and public building developments are funded.
Savings or Mortgage?
One of the main reasons people feel confident enough to venture into property development is because they have plenty of savings to work with. Having money readily available, all of which is your own, has to be the most comfortable way of setting yourself up.
However, not everyone has the thousands of pounds immediately on hand and developments still go ahead. One way of getting the cash you need to fund a building development project is by re-mortgaging. This should only be done after careful consideration and it can only be done if there is a great deal of equity in existing properties which you own. The equity in your other properties should mean you can access funds from the bank which can be put back into your intended project.
If this is not an option for you then you can still look into other ways of gaining funds from your mortgage lender. An advance might be available if you speak to your mortgage advisor but it this is one of the more costly ways of coming up with the cash for a new project.
Choosing a mortgage for your development could have penalties which you might need to think about if you intend to sell the property. With many mortgages you face fees if you sell the property off early on, meaning your finances will be hit that little bit extra.
Another thing to consider if going down the mortgage route is that it will probably affect your monthly payments. You’ll need to figure your monthly mortgage payments out and then balance it with what you can afford. There’s no point increasing you’re outgoing to get a project started if you won’t be able to survive month by month
If you’re brand new to the development game then you may well benefit from entering a joint venture with someone a little more experienced than yourself. From this partnership you will gain valuable experience and you can fund the project together, meaning that you don’t have to draw up quite as much in the way of funding on your own.
Residential or Commercial
Funding for residential or commercial developments is different, with buy-to-let mortgages available for residential projects. This means you will be able to get a mortgage based on how much you are set to receive from renting the property.
Commercial projects are more difficult to fund if you have no experience. You need a strong business plan and you might be better advised to begin with a smaller, more manageable project so that you can build contacts and experience before taking on anything larger.