Developing a new or existing property is a dream of many as it allows you to use your creative juices to really create something utterly amazing based on your own perceptions of what might appeal to the audience you are targeting. However, as with any large-scale project, finding the money to fund it is often the sticking point in what should be an incredible experience. Fortunately, when it comes to real estate projects, you have various options open to you as long as you know where to look, and this post will help to point you in the right direction. From sourcing specialist development loans to ensuring you budget everything down to a tee, you will come away with a renewed sense that you can accomplish your dream project without worrying about where the money will come from (or how to pay it back).
Source Lenders Specializing In This Field
Property development is a very specialized industry, and as you might expect, there are several possibilities for lenders that excel in lending money for it. When you’re on the lookout for funding, you might find that dedicated property development loans will be the best avenue open to you. These loans are fully focused on sourcing and providing the money that property developers might need for all aspects of a project. This can be from land acquisition to the final fitting of the property to make it ready for new tenants to move in. Due to the complexity of this type of loan, they are usually split into different companies, including:
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Site loan: This loan is focused on helping you buy the land you wish to develop and all the ancillary expenses associated with such an endeavor (legal, title change, etc.).
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Construction loan: if you already own the land you wish to develop, a construction loan can help you fund the costs of the actual building that might be involved. In practice, this could mean helping you to fund everything from the labor to the materials and everything in between.
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Mezzanine finance: Land development can be a complex game to play, and you can often find yourself at the mercy of local planning committees and other legal issues. Mezzanine finance (also known as preferred equity) can help you cover these costs and keep everything legal.
Make Sure You Plan The Entire Project From Start To Finish (Including Contingencies)
Planning out the project is a crucial component of not just ensuring that you can acquire a loan (the lender will want to know how the money is being used and how they will get repaid), but it is also good business practice. How you plan out your budget will depend entirely on what you already own and what you plan on building, but the key is to make sure that you have factored in anything that will cost money, along with other aspects that could make an appearance as you progress through the project. Planning for these known unknown contingencies will allow you to understand how much you need to borrow and, therefore, how you will be able to use it and eventually pay it back.
Explore Government Grants And Incentives
While not always the case for private enterprises of this nature, you could find that the government provides a slew of different grants to help smaller projects get up and running more effectively. As long as you can prove how you will use the money and boost the local economy by hiring local contractors and using businesses, for example, you may find them more than willing to provide you with some money. Just be aware that these kinds of grants rarely cover the entire costs of a project and should be considered as but one of several different funding sources you need to complete the venture.
Seek Partnerships If You’re Willing To Give Away Equity
If you are willing to part with some equity, you might find success in tapping local business people for money. There are plenty of people with money burning a hole in their pockets and are just waiting for a high-quality venture to come by and present itself. Although this has been less palatable in the very high interest rate environment we currently live in, we are on the tail end of it, and you may find more people willing to use their latent cash to invest in projects that make sense financially. If you are able to find a silent partner, then it’s even better. However, just be aware that once you give away equity, the only way to regain it will be to buy it back, and once you have made the enterprise successful, that equity will be worth a whole lot more than when you gave it away.
Consider Crowdfunding Or Peer-To-Peer
Crowdfunding and P2P lending are relatively new entrants to the world of finance and lending but have shown great promise in a number of small to medium-sized ventures. The only real downside is that this type of lending is typically aimed at new businesses creating products or selling services. Nevertheless, you shouldn’t discount them, as some P2P funding sources specialize in real estate and are worth looking into.
Leverage Your Personal Savings If Possible
Depending on the size of the project you are attempting and the depth of your personal savings, this could be a great source to tap into. Naturally, you will only want to put in a certain amount of your own money and still find other lenders to spread the risk, but by fronting up a substantial portion of yourself, you can prove to others your belief in the project and reduce the burden of repayment when it comes time to pay your loans back.
Getting your project financed generally requires a bit more than simply heading to your local bank and taking out a large chunk of money. In most cases, you will need to use a lender experienced in these sorts of lending agreements, as they will be best positioned to offer you the right amount on terms that suit everyone.
