A Proposal for Property Development Finance Needs Proper Documentation
Developing property is just one more way of finding an outlet for your talents and any money that you have for investment. However, it is very important to understand that real estate will gain value only after it has been properly designed and constructed. But for this you need money and that can be hard to come by unless you know the places and how to secure property development finance.
Obviously all land has some value but if it is undeveloped, then the value does not increase significantly. Further, there is no guarantee that a property development scheme will be profitable. In fact, many are not and this makes property development finance a greater risk than most other investments. This is the reason that lenders approach the field of development finance with great caution and need to be very well convinced about the feasibility of the project and just as importantly, the capabilities of the developer.
So any prospective developer must be fully prepared before any approach is made to lenders for the required finance for any development project. These preparations have to include all the necessary documentation relating to the property that is to be developed, a complete business plan, which can demonstrate the ability of the developer to carry out the project and to be able to manage the debt that is being undertaken. If the developer is an existing company properly audited accounts of previous years can help to convince lenders of the credentials of the developer. In such cases, details of shareholders, company officials and other stake holders also need to be divulged. The developer must ensure that these documents are prepared well in advance, properly reviewed and deal with any possible objections. Getting help from commercial finance brokers can help to create the necessary documentation, as they are people who will be well versed with what financiers and lenders ask for.
Property development finance can also be obtained from lenders and investors with elements of debt and equity. In such cases, the investors are given a share in the ownership and will be partners for any profits that are made after the property is developed. Mezzanine finance may also be resorted to which combines both equity and debt and has to be paid back after a period of seven to ten years at interest rates that can be quite high. When preparing any proposal for development finance, it is best to do this in an acceptable format and agree to any terms that any lender has. This greatly increases the chances of acceptance of the project and getting the required finance.
Figures presented in any proposal for finance need to be realistic and must allow for downward trends in property markets. Contingencies must be catered for while escalation of costs, need to be adequately factored in. Any valuation for the proposals becomes more credible if independent surveyors are appointed.
It can always help if the project is properly detailed and even permissions obtained before any lender is approached. This will mean that the developer will need to use their own finances for this, but lenders are always more comfortable with lending to people who show initiative and eagerness in using their own funds. In fact, any proposal that shows that the developer will put up a fair percentage of the required finance for the project has better chances of being accepted. Proposals that show that the amount of the debt as not exceeding 75 to 80 percent of the value of the project after development have the best chances of attracting finance at fairly decent terms.
Property development finance is seen as an area of finance that involves a lot of risk, as profits are very much in the future and dependent on completion of the project in time and under cost. During the period of the construction, market conditions can change and this can affect the final profitability.