Home Recent Landlord News Raising finance for property or land development

Raising finance for property or land development

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mistakes-landlords-make-2018Some are more cost-effective than others

Raising money to finance a property or land development project usually means sourcing a significant sum. For landlords to investors to property developers, there are countless development finance and land finance solutions to explore. Some are more cost-effective than others, but all bring their own unique pros and cons to the table.

To help shine a little light on this often confusing issue, here is a brief overview of the most popular and accessible finance options available.

Commercial mortgages

A commercial mortgage has traditionally been the preferred option for most commercial property purchases. Examples include warehouses, offices, shops, and pretty much every other type of property that doesn’t qualify as residential.

For the most part, commercial mortgages work in a similar way to traditional mortgages, allowing the balance to be repaid over several years or decades.

Also like traditional mortgages, commercial mortgages can be tricky and time-consuming to organise. Unless you have plenty of time and an excellent credit history, you may fall at the first hurdle.

On the plus side, those who qualify have the opportunity to spread the costs of their commercial property purchase over the longest possible time period.

Specialist development finance or land finance

Depending on the nature and extent of the project, it may be possible to secure the required funds through a specialist development finance or land finance product. As the names suggest, these are made-for-purpose funding solutions that are typically tailored to meet the exact requirements of the borrower.

More often than not, development finance and land finance will be offered to cover a maximum of 75% of the project’s total estimated value – though it is possible in some instances to borrow more. Rather than receiving the money in one lump sum, such facilities usually release funds gradually as required while the project progresses.

As they’re tailored specifically for property and land development projects, these products can be uniquely competitive by way of low interest rates and minimal overall borrowing costs.

Auction finance

Property development projects that involve purchasing homes or business properties at auction call for immediate funding. Unlike a typical commercial or residential mortgage, auction finance ensures that the necessary funds are made available within a matter of days.

It’s also possible to secure affordable auction finance to purchase land that goes up for auction. Hence, if there’s a deal that’s simply too good to pass up, there’s no risk of losing out due to temporary financial shortfalls.

Bottom of FormBridging finance

Last but not least, bridging loans are particularly popular among property developers, investors and entrepreneurs. Bridging finance effectively removes the vast majority of the inconveniences and complexities associated with traditional bank loans.

Secured against the borrower’s assets (usually their home or business property), a bridging loan can be used for almost any legal purpose whatsoever.

In addition, there’s rarely any requirement to undergo a credit check or provide extensive proof of income. As a result, the funds required can be made available in as little as five days.

After this, it’s a case of repaying the loan in a single lump sum payment between six months and 18 months down the line, potentially with a monthly interest rate of less than 0.5%.

Speak to the experts

The above examples represent just a handful of the available options for financing a property or land development project. In order to ensure you get the best possible deal to suit your requirements and budget, it’s important to seek independent expert advice as early as possible.

Speak to an independent broker to explore the options available, comparing as many deals as possible from the UK’s leading lenders.

By: iConquer

Source; Moneydonut

Date; 17th of May 2019

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