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Sources of Property Development Finance

Sources of Property Development Finance

Regardless of whether or not you are embarking on building your very first property, or whether you are a highly experienced property developer, you will still need to obtain the proper amount of financing to develop your property. Property development finance covers such things as the purchase of the building site, as well as the actual costs of building up the property.

There are three basic elements to property development finance. The first is to have a good understanding of all of the different types of costs that are involved in the acquisition and the building. The second is to correctly appraise the possible sales price of the property. And the third is to properly manage the property development finance from conception to completion of the property development. These three elements will help ensure that any property developer can make a profit.

Obtaining property development finance will depend greatly on what type of financing, as well as how much financing your project will require to begin with. If you need property development finance so that you can eventually sell the property, you will likely need to seek out short term or medium term property development finance from a bank. This type of financing will help you with purchasing the site as well as covering the necessary construction costs. However, if you are needing property development finance so that you can retain your interest in the property as an investor, you should apply for long term investments in your project through one of the many property development companies. In this situation, money is borrowed against the security of the property development so as to create an interest in the project. This interest can then be sold a later time to another organization or third party.

Sources of property development finance are quite varied, depending on how the funds are to be used. Short term property development finance usually covers 2 – 3 years and will be limited to the security in the land and buildings for the duration of the building and site construction. This is also one of the more expensive property development finance options. Short term property development finance will also have higher interest rates. Property development finance for short terms can also be sought through clearing banks. These clearing banks offer loans that can cover up to 70 percent of the value of the project and usually do not require there to be any equity participation.

In regards to long term property development finance, lenders have such options as utilizing a 30 year straight mortgage with a fixed rate of interest or a mortgage debenture.  However, another source of property development finance is through the use of a joint company. This is an agreement between the property developer and the financing institution in that they both hold shares in the project.  The financing institution then acquires the building site and permits a leasing arrangement to the joint company at an agreed upon percentage of the total costs of the property development.

Photo courtesy of compujeramey.

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