4.1 Explain the Principal Sources of Finance for Property Development

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Explain the principal sources of finance for property development

Property developments can be funded in a variety of ways. Although not a great deal of capital is always needed to begin your first project, you do need to consider your finances objectively and with a view to the economy perhaps taking a second dip. Loans from banks or family may get you happily started on your first project with repayments appearing within a comfortable affordability range – however, redundancies are common place as are drops in income. We are constantly reminded that homes can be repossessed if we cannot afford to keep up the repayments. Those gloomier aspects aside, there is a wealth of sources of finance out there. The main ones to outline include: ▪ Mortgages

▪ Investment syndicates
▪ Grants
▪ Government and Council schemes
o Shared ownership
o Shared equity
o Home Buy
▪ Personal equity
▪ Friends and family

When considering the availability of sources of finance, the best place to begin is closest to home – the capital you already have in your own home, also known as available equity (if your home is worth more than your mortgage). Banks may be happy to lend if you use your home as a security. Should the equity on your home be enough to buy your first property outright, then you can use it as collateral on further properties.

Friends and family may be willing to put up a share of the property amount if you are able to convince them that their money will be more profitably invested in your business; rather than the volatile financial markets or low interest savings accounts currently available. A suitable contract should be drawn up to prevent any misunderstandings of how the money is to be used or repaid. If the property is a buy-to-let, tenant income can be used to repay the loan you have made. If the same friends or family are happy to keep the money invested in the property, then again you can...
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