Successful developers invest time, effort and money to understand the fundamentals of the business; Process, People, Product and Market) Place. These fundamentals form a solid foundation in which to build a low risk, high reward property development business that can have a positive impact to many.
In last month’s article we discussed the important issue of navigating planning. This month we move on to another important topic, funding.
In this article, we’ll go through the funding options and structure, cash flow, fundamentals of raising finance, and take a deeper look into the risk money mindset. The need for funding runs throughout the entire process of property development, from your early-stage business processes such as lead generation, marketing, and general business overheads, to site acquisition, planning, the build phase and exit funding. To run a sustainable, scalable business, you first need good working capital to get you to the point of site acquisition, which is where more opportunities for finance open up.
There are tons of options out there to fund your projects, but lack of experience can cut down the options available and affect the rates you are likely to pay. Below is a list of funding options for acquisition, planning and construction:
- Your own money
- Investor funds
- Equity (in businesses, property or other assets)
- Development finance companies
- Bridging loans
- Peer to peer lenders
There are lots of iterations within these, but the list makes up your main options. Financing a project can take many forms with funding solutions tending to be deal specific, considering different factors.
A typical breakdown to fund a development project could be: