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How to fund a development

development finance May 10, 2021

THE QUESTION

Having been offered a plot of land suitable for building four houses, what’s the best way to fund another development?

THE ANSWER

Funding new build developments is simple, you use a development finance lender to lend you 100% of the build cost and then you get creative on how you finance the purchase.

If you have a chunk of cash yourself for the deposit then the development lender will lend the rest. You don't need to be overly creative to make that work.

If you don't then a simple workaround is to bring the landowner into a JV with you:

    • Set up an Special Purpose Vehicle (SPV)limited companywith you and the landowner as shareholders(you agree with each other what percentage is fair)
    • The landowner can lend the land to the SPV for a commercial rate of interest (same as if they were lending cash)
    • This acts as the deposit the developmentlenders wants to see, so you get the money to build it out.

You create the win for the landowner by giving them a percentage of the project profits via their SPV shareholding as a reward for deferring their payout until the end of the project.

This will need to exceed what they would have received from just selling the land at the front end of the project.

Lenders will want to see the planning approval notice, architect’s plans and a build cost and build time schedule.

A good broker will be able to find the right development finance for you (get in touch if you need help).

 

You can learn more here:

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