A good option is to use the facility of Property Development Finance. It basically operates as an interest only and draws down facility to help in the financing of the financial developments. The profit in this method is capitalized in the development period where the whole loan includes the interest charged. This is paid during the sale of the new development or in the refinance of the residential debt.
The amount of money that the borrower can achieve from the Property Development Finance depends on the criteria on which the borrower is required to meet. The amount hence varies from one lender to the next depending on the dependant to the proposal. The land development cost for financing can attain up to 80% of the cost for the development while the GVR financing can be between 65 and 75%. The amount is hence determined by the desired need and the company that one is seeking the loan from.
There are a number of options that one gets from Property Development Finance. The given options however vary on the amount that one can receive as well as the requirements to be liable for it.
Land Development Cost -This option provides the person seeking the Property Development Finance with the desired funds in acquiring and constructing of a development. It also includes the soft costs such as the interest cost, engineering and the architecture cost. This is by far the most commonly used option. It is limited between 70 to 80 percent of the overall cost. One can also be required to get pre-determined levels for the pre-sales before the finance is approved.
Gross Realizable Value - This is used to provide finances based on the projected end value of the property development. This means that it excludes the GST. One is able to borrow up to 65 to 75% of the total value of the development. This enables one to get full cover for both the soft and the hard cost hence curbing any expenses form ones pocket. This method does not require the pre-sales since it is used for smaller developments of under five million dollars.
Mezzanine finance - This is only available to the experienced property developers. This basically involves the use of money from the external investors unlike the others which get the money from the deposit capital from the partners. It supplements the two former options and involves the specialist lenders as well as the private investors. The interest rate is normally higher than other option and is based on various factors, risks being one of them.
Property Development Finance is important as it helps most people achieve their desired goals with fewer strains. However, it is important to know certain factors that affect the eligibility of the borrower. They include the experience in lending, equity, location, the profit potential and the development purpose.
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