REAL ESTATE FINANCING OPTIONS FOR DEVELOPERS

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Investing in real estate is almost everyone's dream investment. However, most people find that dream cut short by the lack of capital. Well, sometimes that capital is never so far from you. You just have to look in the right places and ask the right people. You will stumble upon some good information like this piece. In this article, I outline the financing options that do not incur you a cost. With the options outlined below, you do not have to worry about interest rate fluctuations.
 
Personal Savings Plan

Saving can be a good way to accumulate capital to invest in real estate. However, this is rare with capital intensive project or large scale projects. It is recommended for smaller scale projects that do not need much capital to complete. It is also a viable method of financing for developers who have been in the industry for a longer period and have accumulated enough profits to plough back (reinvest) in the industry. The first step is to prepare a budget to which will help the developer know the capital requirements and the money available. There are no financing costs involved in this method.

Joint Ventures

Banks will require borrowers to finance a portion of the total investment plan. This is roughly 30%. A land owner may at sometimes not have this amount ready. This is where joint partners come in to help. Joint partners contribute the minimum top up required by banks to obtain financing. Another way that joint venture works is where the land owner looks for a financier to develop the land. In this case, the land owner’s contribution is the land itself. The partners split the profits in a predetermined ratio. This form of agreement requires formation of a SPV “Special Purpose Vehicle”. The SPV usually is a joint company owned by the land owner and the financial partner. The SPV becomes the land owner. 

Contractor Financed Agreement

This financing method is similar to the joint venture. The joint partner in this case is the contractor working for the developer. The contractor agrees to develop the land and get payment after the project’s completion. This case also requires a SPV

Off Plan or Pre-Sale Financing

This financing method is most useful in developments located in fast moving or prime areas. Such developments are sold before construction starts. Developers offer incentives to buy in form of discounts from the actual selling price upon completion. Developers who buy early pay a lower fee than those who buy when the project is completed. The returns from pre-sales are used to fund the construction. 

You will notice that these options do not incur you a lot cost when raising funds to invest in the dream property development. There also several options for potential home buyers who may not find the methods i have outlined viable. In the next article, I shed more light on the financing options that are available for home buyers.