How to fund your property development portfolio
You may be new to property development, or looking to expand your portfolio. Either way, you will need to raise the funds to afford your venture.
Like any investment, you will need to put money in in order to gain returns and profit.
When it comes to property, you need to have a clear idea of your finances and your financial goals in the short- and long-term.
But how do you raise the capital to fund your property development venture? We have all the information you need.
There are 2 main types of capital that developers can raise: debt and equity.
Debt and loans
The word ‘debt’ may sound scary, however it’s not as daunting as it may seem.
Most property developers who are starting out, and even more experienced portfolio holders will take out loans from property finance lenders.
Funding a property project through finance is a relatively low-risk and reliable way to kickstart the project of your dreams.
There are funding options for all types of property development project:
- Residential developments
- Commercial property projects. Read more.
- HMO properties/Buy-to-let properties
- Construction projects
- Renovation projects
Equity
This is a higher-risk capital to raise compared to debt. Fewer property developers will opt to raise equity.
What is equity?
Equity is the value that would be returned to an individual’s or company’s shareholders if all debts were paid off.
There are numerous forms of equity financing:
- Friends and family
- Crowdfunding
- Self-directed accounts
- Remortgaging
- Private and hard money lenders
You can lend from friends and family which is usually a small source and is most popular among new property developers.
You can collect money from people you know well with the promise to pay them back.
Crowdfunding is money that is collected through fundraising or through a connected partnership or sponsorship.
Many experienced property developers will fund the expansion of their portfolio through self-directed accounts such as personal or retirement accounts.
Remortgaging existing properties can be an option for property developers with more than one property in their portfolio.
Hard money is when a mortgagor receives funds tenable by property.
Hard money lenders are licensed to lend money to those who need it most – this is the easiest and most reliable way to raise equity.
See also:
Our Top Tips On How To Increase The Value Of Your Property
Make sure your Extension is Built Right