How to get into property development with no money
Property development is an appealing career and there are plenty of people who would like to get into it.
When a project goes well it can be very profitable and with the property development finance market as busy as it has ever been there are plenty of lenders and options out there for developers.
But how can you get into property development with no money of your own?
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How can you get into property development with no money?
It’s not straightforward and it won’t work for every one but there are some ways you can fund a project without your own capital.
Before you read on I must stress that you will need SOME cash. Lenders will want their fees paying, such as valuations and legal fees.
You should also keep in mind that not having some cash behind you makes any project more risky.
If an unforeseen cost comes up and you haven’t got the means to pay it you will either have to borrow more and reduce the profit or risk your project coming to a halt altogether.
Here are some ways to get into property development with no money:
Release equity from your own home
The term asset rich and cash poor comes to mind here.
The equity you have in your own home, or other property you own can be used as a deposit for a development project.
Raising a mortgage on a property is relatively straight forward and shouldn’t take too long to complete.
A qualified mortgage broker will be able to help you and give you the advice you need.
How effective this will be for you will depend on your circumstances:
How much equity do you have? How much extra finance can you borrow based on your income?
A long term mortgage lender will look at your current position and won’t take into account the profit of a project you are looking at.
While it can be quick and easy to raise capital this way, there are some draw backs.
The biggest one is if the project doesn’t make the profit you expect, or fails altogether, you will still be left with the new debt you’ve taken on to help fund it.
That will still need to be repaid and may cause a strain on your future finances.
Provide additional security
Another way to use the equity you have in existing property is to offer it to lenders as additional security.
In fact, when lenders say they offer 100% finance, this is what most of them mean.
The lender will take a charge over any other property you own, as well as the development project, so they have enough cover in case the project goes wrong.
This is a good substitute for cash from a lender point of view, as you are still committing your own resources to a project.
If you have property without a mortgage it will be easy to use but if there is an existing mortgage you will need the permission of the first lender.
Get a business partner/investor
If you have the knowledge and skills to do the work but have no cash, you could partner with someone who does have the capital needed to buy into a project.
This works well as a lot of people are keen to get into property but most don’t have the practical experience needed to carry out a project.
Using your build experience and someone else’s capital can be a great way to work.
You should take legal advice from your solicitor before entering into any agreement to make sure all parties are happy with the profit share and responsibilities they have.
Buy a property with a short lease
If you can find a leasehold property with a short term remaining on it, you may be able to buy it and extend the lease at the same time.
As a lease gets shorter, the cost to extend it will go up and if it’s not extende will revert back to the freeholder.
You may find a development project on a leasehold property in this circumstance.
Where a leaseholder can’t afford to extend the lease they may be willing to sell for a lower price.
I can find you finance to buy the property and extend the lease on purchase, so even with 100% funding you will have equity in your new project.
You can then look at the work you can do to increase the value and I can arrange further finance for you.
Of course, the cost of extending the lease will affect the profit in the project so it needs to be considered.
Joint Venture funding
There are a handful of lenders in the market who are willing to fund 100% of the costs of a project.
There are different ways lenders will structure 100% funding and it is always expensive.
You will be charged interest on the money you have drawn down and have a profit share at the end of the project.
For this to work you will have to have a strong track record of running projects. If you are a first time developer looking for first time property development finance, lenders won’t be interested to fund you, even with a third party contractor.
They are providing the money so you must provide the expertise.
While it is expensive, it can be a way for you to get into a project which would otherwise be out of reach.
And a piece of something is more valuable than 100% of nothing.
Joint venture with land owner
Another way to get into property development with no money is to do a joint venture with a land owner.
In this scenario you would form a new limited company which the land will be transferred into.
Normally, you would be the company director, the land owner would be a second charge holder and/or a share holder.
This means you are responsible for the finance if something should go wrong, rather than the land owner. They won’t want to have to be liable for a loan on their own land.
Assuming the land is either free of borrowings or has a relatively small loan a lender can finance the build from the start, so you won’t need to use your own capital.
To make this attractive to the land seller you would negotiate an increased payment for the land at the end, or a profit share. Depending on the figures you could also pay them some cash now with the balance to follow.
The trick here is finding a land owner willing to go into business with you as most want to be paid now for their sale rather than waiting 12 months or more for the money.
Buy under value
If you can find a property that is genuinely being sold under value there are lenders that can lend based on the true value rather than based on the purchase price.
Here I am talking about someone motivated to sell quickly who is willing to take a lower offer than the property is worth now.
If you can make saving on the purchase price this can be a route to get into property development with no money.
Can a broker help you get into development finance with no money?
Yes, of course I can!
With an extensive knowledge of the market and wide panel of lenders I can help you get the property development finance you need, no matter the level of capital you have.
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