Property development is an exciting and diverse sector to be involved in. However, the variety of ways to manage and fund a project can be a minefield to navigate, particularly if you have limited experience. There are many other pitfalls to avoid too, and there will always be a certain amount of learning 'on the job' required — in this article, we’ll cover some useful tips for property developers.Get working capital
Property development is an exciting and diverse sector to be involved in. However, the variety of ways to manage and fund a project can be a minefield to navigate, particularly if you have limited experience. There are many other pitfalls to avoid too, and there will always be a certain amount of learning 'on the job' required — in this article, we’ll cover some useful tips for property developers.
Having personally developed a number of properties and with years of experience working in commercial finance, I have a unique perspective on property development from both sides of the fence. These tips will help to put any serious property developer on the right path when raising development finance, from the initial purchase costs all the way to the project’s completion.
It’s important that you thoroughly understand the development. One of the common mistakes that potential developers make is choosing the wrong area for a build, and rushing into a project blind. If you’ve done your research and asked the right questions, you’ll get a more accurate idea of the area and its potential, and you’ll be less likely to have problems down the line.
Gaining planning permission is paramount in the development process. You should initially determine whether your intended development will require planning permission by contacting the council. It can be a long process, depending on the nature of the development. Whilst lenders can arrange finance subject to planning permission, it will mean nothing if the permission is not granted, and could be more costly as a result.
Lenders love to work with developers with past experience. This is why they’ll often ask for your CV and the CVs of other members of the development team. If you have a background in delivering development projects, it'll be favourable for your case. On the other hand, if you’re a first-time developer, you’ll need to show you’ve done your homework and are able to contribute both experience and your own capital to the project.
Whether you’re using your own workers to conduct the build or you plan to hire external contractors, you should get competitive quotes that work to your budget. The costs of any development can quickly pile up, and it’s also good practice to factor in the risk of going over-budget or overrunning on time. And by including a contingency in your spend — usually 10–15% either way — you’ll be better prepared for any unexpected costs along the way.
Having outright ownership of the land or property that you’re planning to build on is a massive boost to your application. An unencumbered asset is owned land or property with no existing mortgage or term loan over it — lenders can often provide up to 100% of the development costs in these instances.
You should complete the information requested meticulously — incomplete application forms show a lack of interest in the project and reflect badly on your funding proposal for the development. Be robust and thorough with your application.
There are different ways to structure the finance for development projects. Solutions are flexible — they can work to different build schedules and different abilities to make repayments. A common option is to use short-term finance for purchase and build costs, commonly referred to by lenders as bridging finance, and then 'exit' into a longer term loan or commercial mortgage.
There are many competitive lenders in this market with different appetites for lending, according to geography and the development project at hand. However, bear in mind you’ll need an 'exit' planned from these short-term loans, such as selling the property or a refinance onto a long-term mortgage. We can help discuss these options as the application moves forward.
Although they’re an additional expense, a project manager could actually be a saving overall. As well as being a liaison between different teams of contractors, they can make a huge difference to how well you stick to your budget and timeframe, and help you avoid unexpected costs. Experienced project managers could also prove useful if you’re new to property development or you’re embarking on a new type of project that you haven’t done before — giving you peace of mind that your project will be a success.
Being honest about your experience, abilities and financial standing will ultimately benefit your application. We can help you understand what to expect when taking your application forward to potential lenders. There are many ways to develop property — the best of which will depend on the nature of your development. Raising property development finance is an oft-used and sensible method for funding a project.