Some people regard 100% property development finance as the holy grail of property funding. So it is not surprising that it is one of the most often requested types of loan. We should say right at the outset that 100% development finance is possible, however there are several important criteria that a lender will look for.
Firstly, the project will always need to show a substantial profit. This can be a refurbishment or development scheme, but either way the sales figures will need to show at least 25% return on costs. For a crude calculation simply add together the purchase price and development (or refurbishment) costs then multiply by 1.25. For example if a site costs £200,000 and the developer is expecting to spend £33,000 the total costs are £233,000. The sales price would then need to be at least £295,000. Obviously this is a very rough calculation but it does give a good “rule of thumb”.
The next major question that a property development lender will ask is “why is the developer asking for 100% property development finance?” It is not unusual for a property developer to have all their available capital tied up in one project whilst looking for the next scheme, but there are a number of other acceptable answers. The challenge comes when a property developer asks for high levels of finance with no provable experience and little support.
Over time a property developer will assemble a team of professionals to support them, this will be suppliers, tradespeople and specialists such as architects, quantity surveyors and solicitors. This team becomes an asset and a good quality team can go a long way towards impressing a property development lender.
Because the risks to the lender are so high it is not unusual for them to monitor a project very closely, some developers have commented in the past they they find this quite uncomfortable!
100% development funding can either be supplied by one lender or, more often, be provided by a combination of a main lender and a second specialist lender “toping up” the funding. Either way 100% property development finance is a very specialised form of funding and using a specialist broker can make all the difference.
[tags]100% property, property development finance[/tags]