There are varying levels of property development finance available but simply put, you can borrow up to 100% of the purchase price & 100% of the development costs. So what's the catch? Simple, the higher the loan to value, the higher the costs, but if you know the costs then you can select a property development project with sufficient profits to take account of those costs.
Here are the different options are available to developers depending on their own circumstances so to help you decide where you fit within the options available here is a simple guide to costs for varying degrees of borrowing.
Senior Debt is funding up to circa 70% "Loan To Value" for site purchase and 100% of property development costs which is borrowed against the increased value of the site as work progresses. This area of finance is typically bank based funding and is the lowest cost finance usually at base rate plus one, two or three percent per annum.
Mezzanine Debt is offered by specialist companies and covers lending above Senior Debt levels usually that slice of debt covering 70% to 90% of loan to value purchase & development costs. This funding is usually at a high bridging loan rate via a second charge over the development and costs between 2% and 3% per month, yes that's right, per month. Sometimes this kind of lender may require a profit share i.e. up to 25% of profits too!
Equity / Joint Venture Finance covers loan to values from 70% right up to 100% funding. Again offered by specialist lenders, you will still be charged Senior Debt interest, plus Mezzanine Debt interest on the top 30% giving 100% funding. This kind of lender will typically require a 50% profit share to finance 100% of purchase & 100% of property development costs.
Once you lend above Senior Debt levels the costs do increase but property developers still do actively seek levels of finance over and above 70% and for good reason. A 50% share of profits from a development opportunity is better than a 50% share of nothing!
Property development finance is available for commercial and residential developments, finding the lowest cost option, well that's a different matter.
For more information on property finance please feel free to visit
Finance for Property Developers UK & world wide.
For more information on short term property bridging finance please feel free to visit
Bridging Finance for Property Developers UK & world wide.
