How to Finance a Property Development Project

How to finance a property development project

Whether you are thinking about property development for the first time or you are an experienced developer looking for some new ideas, the financial basics are always the same. To make a profit the developer must:
1. Understand all the costs involved in both the acquisition and build phases,
2. Accurately assess the potential sales price and
3. Manage the finances to project completion.
Calculate and understand the total costs
It is essential for any development project that all the costs are clearly understood before purchase or embarking on the build phase if the site is already owned.
Land/building acquisition price
This is the total cost of purchasing the building and/or land
Build or refurbishment costs
The total cost of all materials and labour involved in the build or refurbishment phaes
Stamp duty
Stamp duty is payable to the government at the following rates:
Up to £120K   0%
From £120,001 - £250K  1%
From £250,001 - £500K  3%
From £500,001 and above 4%
Professional fees
Professional fees will probably include the services of a solicitor, architect and surveyor and possibly the services of your lenders quantity surveyor
Finance costs
Finance costs include the cost of any:
• Residential or commercial mortgages required to purchase the development site
• Development finance required for the build
• Interest charged on the finance either rolled over the total project or payable on a monthly basis
• Finance deposits required for acquisition and development finance
Contingency costs
Development project costs can very easily be underestimated or can escalate due to unforseen problems. For this reason it is very sensible to include a contingency cost that can be used if the worst happens. Contingencies estimates can vary between 5 and 25% of total project cost depending on the degree of complexity and risk involved with your project.
Total Costs
Until all of the above costs are known and...