Barriers to Finding Finance for Property Development
Within property development and property flipping, receiving financing has become an increasingly difficult task. Banks are not as open to providing finance in these areas as they have been before, particularly since the recent financial crisis.
One of the barriers for would-be property developers is that banks have less buy to sell mortgage products available. Not only this, the ones that are on offer take several weeks for the transaction to complete and be underwritten. These available buy to sell mortgage products often require large deposits and come with restrictive conditions when it comes to fees and rates.
Another major obstacle is that buy to sell mortgage products are limited to properties that are deemed sound and habitable. Therefore a lack of a kitchen or bathroom often results in a mortgage being declined.
Standard mortgages are only available when the buyer has intention to live in the property. This coupled with high exit fees means that this is not a feasible option for short-term lending or financing.
Becoming a property developer not only requires you to know about the key components to successful property development and flipping but you will also need to know where to look to find a finance product that is suitable.
Bridging Finance, the solution you’ve been looking for?
Bridging loans arean option when it comes to short term lending. Due to its specialist nature however, it is important to use a broker who will be aware of this niche market and be able to choose the right bridging product for you out of all the major lenders.
The speed of bridging finance, where it can often be made available within 48 hours of qualification makes it an ideal choice if buying a property auction at an auction.Some property developers make use of bridging finance as a second charge allowing them to increase their cash flow so that delayed projects can be completed or to purchase an additional property.
Through bridging finance lending can be underwritten based on collateral, for example the property itself. This means that the property’s true value and not its purchase price can be considered, enabling a higher loan to value funding.
Investor Partnerships & Joint Ventures, in it together?
An option you could consider is investor partnerships and joint ventures. This is perfect for property developers without any free capital or unable to get a mortgage.
In fact, even if you can get a mortgage you still could consider partaking in a joint venture where you can learn and receive guidance from a more experienced developer.
This scenario where the property developer gains access to the required finance whilst the investor makes a return through a profit share agreement is where both parties win. One of these resources is Glenn Armstrong Property whereby users can find investor partners and choose depending on needs.
Despite what people are saying, it is still possible to receive financing for property development and as lending becomes in this field becomes more specialized, better advice can be provided.