Property development can be an attractive proposition. Whether you’ve taken inspiration from a TV show, seen a fantastic new development on your street, or simply have an itch you’ve always wanted to scratch, property development can be both profitable and enjoyable.
Maybe you’ve got the vision? A neglected barn ripe for conversion, a vacant plot ideal for a new build development, or an old townhouse to convert into apartments. But how should a first-time property developer in Sussex turn that vision into reality? Where do you start? How do you secure funding? Who do you trust to do business with?
Well, obtaining funding is usually the first hurdle, and unfortunately, it can come with several hurdles to navigate and overcome. However, we’re here to help and in this blog, we’re going to discuss the funding options available to you to get your first development project off the ground.
What is Property Development Finance?
Property development finance is a popular option for short-term funding. In its most simplistic form it’s a loan for the lifecycle of your project. It could include everything from purchasing the land, paying for services and covering construction costs. Generally, most property development loans are taken out for between 12 and 24 months, with the loan repaid either upon the sale of the completed project or when the owner finds alternative funding such as via a mortgage from a bank. This is most common when the project owner intends to retain ownership of the property when it’s completed, either to live in or to let out.
Typically, the lender will need to see detailed plans and budgets for the project, as well as a valuation for the property once completed.
The Pros and Cons of Property Development Finance
Pros:
Development finance is flexible, adapting to your project’s needs. It’s often quicker to secure than traditional bank loans and can be a good option for complex projects. You can often borrow significant amounts of money quite quickly. In many cases, we can provide a decision on your property development loan application within a week of receiving it.
Cons:
Interest rates tend to be higher than other options. Repayments can be tied to milestones throughout the project, which means delays can cause financial shortfalls.
You can find out more in our Complete Guide to Development Finance.
What is Equity Finance?
Equity sharing, or equity financing, is an alternative property development finance approach that some people prefer. With an equity sharing agreement, you partner with an investor who contributes a portion of the project’s cost (equity) in exchange for a share of the profits upon completion. Many people view this as a ‘safer’ approach, and it might be a good choice for a first-time property developer, as you can lean on your business partner for help and advice. This approach is also often used for very large projects as it can share the risk and reduce any individual’s exposure.
The Pros and Cons of Equity Finance
Pros
This option eases your financial burden and can attract investors seeking high returns. You can also take on less risk and learn from somebody with more experience, building long-term business relationships in the process.
Cons
You lose some control over the project and, of course, reduce your overall profits. Finding the right investor can be time-consuming, and their involvement can impact your decision-making.
You can find out more in our Complete Guide to Equity Financing.
Traditional Bank Loans & Property Financing
Many banks will offer loans specifically intended for property development, and these can be a realistic option, but not always for first-time property developers in Sussex. While they offer security and lower interest rates, and are especially well-suited to those who will live in the property afterwards, they can be more challenging to secure, especially for first-time developers.
If you need finance to purchase the land as well, it’s unlikely that a traditional bank will be the best funding provider.
The Pros and Cons of Traditional Bank Financing
Pros
Interest rates can be lower than development finance. Long-term loan periods offer security and less risk.
Cons
Strict eligibility criteria, requiring a strong financial track record and detailed project plans. Banks may also require a significant deposit upfront and/or existing collateral.
What Type of Property Finance is Best For You?
The best property development finance option for you depends on your specific project’s requirements, your financial situation, and your tolerance of risk. As a first-time property developer in Sussex, there are plenty of opportunities to complete your project and make a healthy profit. We recommend reading our other Property Finance Guides to determine which is the best approach for you and your needs.
Hunter Finance is based in Uckfield and we’ve helped countless property developers across the South East to complete successful, profitable projects, and we’re always looking for new partners to work with. Contact us today to find out how we can help get your first project off the ground!
