Financial Advice Investing

What is property development finance?

If you’re seeking flipping or letting opportunities, property development finance could provide you with the freedom you need

Undertaking a large building or refurbishment job is no easy feat. It’s a mammoth task which is likely to excite and scare you in equal measure. Of course, any job of such scale requires a huge amount of planning, including several key decisions regarding your funding.

It’s imperative that you make the right decisions when it comes to your project, and this means choosing the right financial support. This is why many people in the same situation opt for a property development loan in order to access the finance they need quickly.

But before you commit to any one means of funding, you need to do your research. That’s why we’re here with this handy guide to everything you need to know about property development finance.

Property development finance

Property development finance is used to provide the finance for building projects and renovation works, particularly those on a large scale. For example, residential housing projects, office block construction and expansive regeneration initiatives can all benefit from this kind of finance.

A property development loan is one kind of bridging finance, which is a fast and flexible funding solution that can be applied to a variety of situations. Bridging loans are designed to ‘bridge’ the gap, offering financial stability during a period when funds are low. Once greater funds are accessed through the selling of a property or other means, the loan can be repaid.

Bridging loans are also used to take advantage of opportunities which require fast action, such as buying a plot at auction. Unlike traditional finance methods like mortgages, bridge loans can provide finance within a matter of days.

When is development finance necessary?

Anybody looking to undertake a significant property project should consider property development finance if they are in need of immediate funding. This kind of finance usually covers around 70-80% of the build cost, putting you in a much more realistic situation to get started with your project.

If you’re an existing landlord who already has a portfolio of properties under your belt, these can be taken as security in lieu of the developer having to finance the project with their own reserves.

Acquiring or developing land can be a fast-paced and often unreliable industry, which means that when an opportunity comes along you want to take advantage of it. Bridging finance gives you the opportunity to access funds quickly and take immediate action. This provides you with greater freedom of choice when it comes to selecting your land.

Different kinds of property development loans

There are different kinds of property development loan depending on your requirements. Property development is a broad term which can refer to many different things, such as:

Light redevelopment or refurbishment – aesthetic or non-major work on existing buildings which is relatively unobtrusive.

Heavy renovation – more extensive work within existing buildings, including major structural changes and heavy refurbishment.

Ground-up development – a ‘start from scratch’ project which involves everything from land purchase to completion, requiring major plans and a team of builders.

Bridging finance can also be tailored to specific situations, such as auction purchases.

How to plan and apply effectively

You’ll need to make sure you’ve researched your potential plot fully before committing to it, doing all the necessary checks and visiting the site in-person. Put a plan together of how you expect the project to go, and how you intend to oversee it, including the total build cost and a contingency plan.

It’s a good idea to contact bridging loan lenders directly so you can explain your specific circumstances and together you can come up with a plan that suits you personally.