What is Property Development Finance?

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Property Development Finance
Brent Mack

Property developers are career professionals that build, finance and plan the construction of new build homes and other development projects. Before these projects move forward from being at the planning stage, the entire effort has to be financially planned. It will cost. In some cases, sums of up to £25 million need to be raised for larger developments involving many homes and flats in a big project.

The construction time can take well up to two years or more, depending on the size and type of project that is being planned. In order to raise the finance for the project, a property development finance loan must be sought. Very few people, including experienced property developers, will have a spare £20 million at their disposal, so development financing needs to administer funds, otherwise the entire concept will remain on the shelf.

There are a number of different types of Property Development Finance. Loans can be administered for light refurbishment of a property. This is just cash for redecoration, new fittings and replacement boiler systems. It may include costs for rewiring too. This is often to improve a flat or house to increase its value on the market. A property can add as much as £20,000 to its value just by spending around £12,000 on those light refurbishment jobs.

Many dilapidated properties are bought at auction and refurbished by developers. The intention is to buy a property that has been left in a poor state, refurbish and rent out or sell once the work has been completed. Homes can be purchased and won at auction for an amount well below the regional average. These homes are then refurbished with a budget and time span calculated and sold on for profit.

A typical example is a three-bedroomed home in Hertfordshire that has had little love and attention can be bought at auction for around £150,000. A further £20,000 will need to earmark for repairs and refurbishments before an estate agent can value the property at around £230,000. This gives the property developer a profit of £60,000 minus taxes and deeds. However, the £170,000 initial outlay needs to be found from somewhere, and this is where Property Development Finance comes into play.

It is worth noting that new build projects seeking a property development loan, will only be administered to developers with experience and portfolios showing a lender of previous business in this area.

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Finance

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