When you are starting out in the property development industry, you will no doubt look online to learn more about the different types of finance available to property developers.
Private Lenders finance property developments have their own lending requirements.
Visit this site for more information about property development finance.
Many of the websites belonging to brokers offering this sort of finance have since gone out of business and their websites are least two years out of date.
As a new property developer, you will see many of these out-dated websites claim to provide finance for up to 100% of the total costs, ie. land and build costs. In return for this, the lender asks for a 50% share of the profits.
Even when development finance was easy to come by during the property boom, this much advertised offer was very difficult to come by. It was only ever really available to experienced property developers who held significant assets or were due to receive the profit from a previous development project in the near future.
So, if it is so hard to come by, why did brokers promote it so heavily to new developers? The answer is that brokers would charge an upfront non refundable ‘adminstration fee’ to developers, which they claim would be used to hire a surveyor to assess the viability of a proposed development. The fee of course just went in to the back pocket of the broker. These broker fees were often as high as £3,000 and brokers would take this fee from you even if they knew that a lender would never look at the developer twice due to their lack of experience.
Due to the Credit Crunch, it is now even harder to source property development finance for even just 50% of the total costs. So when a broker comes along offering 100% finance on some property forum, website or property magazine it can seem like a God send.
As an experienced property development finance broker, I can tell you that anybody still offering 100% finance is simply a hard up broker looking to take advantage of novice developers by taking an ‘administration fee’ from them with no intention of providing funding. Remember to run all financial deals by your accountant or financial advisor.
As an experienced property development financier, I can categorically tell you that there is no such thing as 100% property development finance. The maximum amount of funding you can expect is 75% of the total costs and the development needs to show a profit margin of at least 25% on costs.