Funding a Property Development Project
There are many financial resources available to help start one’s new project. The market for lending can seem confusing and vast, however, even for those developers who are experienced. An expert from IBN Direct provides us some information on commercial property loans, as well as property development finance.
Commercial Property Loan
A commercial property loan is secured by liens on commercial property, not on residential property. A commercial property loan is for real estate that will be producing income and used exclusively for the purpose of business. Examples of these kinds of businesses are office complexes, apartments, hotels and retail centers. Usually, the one doing the investing buys the commercial property. At this point, they lease out the space and then collect the rent from the businesses that are performing business within that specific property. The financing for these kinds of acquisitions re accomplished through commercial property loans. Commercial loans range from five years to twenty years. For these kinds of loans, it is imperative that those involved think about the collateral of the loan, the entity’s creditworthiness, and financial ratios. Important ones to consider are the debt/service coverage ratio and the loan/value ratio.
Property Development Finance
Are you building something new? Are you involved in a property conversion, or maybe just a part-build? Property Development Finance is a good option. It can provide up to seventy percent of the cost of a certain project, including the value/purchase of the property. It can also cover the purchase costs. Example of these may be legal costs, stamp duty, or even introduction fees. Design team fees can be covered, such as building regulations, insurance, and warranty. Refurbishment can be covered as well as sales and marketing and interest and fees for the loan. The term can be four months or even three years. These kind of loans are considered short term loans for property developments that are considered residential. It covers construction or projects of refurbishments. It is usually based on the gross development value, or the worth of the project after it is completed. It is then paid back in stages. The lender sends a surveyor to inspect the works and make sure that everything is within regulations in order to release the money in stages.
One of the very first questions you have to ask yourself is this: How extension is this project going to be? This is important before one applies for renovations or any kind of refurbishments for the project. It’s best to break up the thought process into three general ideas, which are light refurbishment, renovation (or heavy refurbishment), and ground-up development. Light refurbishment has its focus more on the aesthetic importance rather than the structural importance. It may involve work with walls, floors, and ceilings, however. Renovations, or heavy refurbishments, do require aesthetics as well, but it also involve electrics, some plumbing, removals of walls, addition of room and extra walls, rebuilding and even some demolition. Ground-up Development is more involved. It begins with an empty piece of land, or even with a large project that begins with the initial stonework.
Depending on what kind of project you’re planning on embarking on, one may consider a refurbishment bridge, which funds about three to twenty four months of costs associated with the building. Sometimes, you can convert these into a mortgage at a later date. For heavier projects, development finance can cover costs for the purchasing of the land and costs of the building. Ultimately, the development of property and the associated costs and financing options can seem a bit daunting. First, find out the extensiveness of the project, then how much time it will take. Figure out how much the project will cost in best case scenarios and in worst case scenarios.