Financing your Property Development: All you need to know about Alternative Creative Financing
Property financing can come in all different shapes and sizes. With so many options to choose from, how do you really know which one is best suited for you? Understanding all the forms of financing available to you is the key to unlocking your potential as a successful property developer. Whether it be bridging or development finance, HMO or holiday mortgages, there is something in particular for everyone looking to finance their next big property venture.
If you think you have exhausted all these finance options, try thinking outside the box. There are a number of alternative creative financing options out there that can truly help, and many property investors throughout the UK depend on them to see a development project through to the end.
Here are some of the best alternative financing options you need to know about:
When thinking about property financing, crowdfunding is surely to be at the bottom of most people’s lists – or maybe not even there at all. It may be surprising to know that crowdfunding is a viable option, primarily due to the part played by lenders of said funds. Do not think of JustGiving or GoFundMe, which are purely for charitable causes, but instead of platforms allowing individuals to invest the money themselves into property developments for potential profit.
Peer-to-peer lending is usually the term used for most of these platforms. It has proved helpful to both property developers looking to borrow money and investors without the total funds looking to ‘chip in’ by lending. It is essentially a ‘win-win’ scenario as it cuts out the banking middleman, giving investors much higher rates than they would from a savings account and borrowers the convenience of paying less than they would with a conventional loan.
When looking for UK crowdfunding platforms, there is a handful on offer. Our very own Richard Bush is the co-owner of Crowdlords, a crowdfunding platform aiming to enable more people to benefit from investing in property. They can improve the availability of high-quality homes to either buy or rent at reasonable rates and help savers and investors generate better returns by investing directly in the delivery of those homes.
Suppose you’d like to invest in a property development project but do not have the time to get your hands dirty. Why not think about partnering with a successful and reliable UK developer instead? Loan notes are a fantastic way to invest passively in property. Whether you are new to property and do not have prior knowledge of how to in the property market, or cannot. In essence, you can benefit from one of the highest interest rates currently available in the UK alternative investment market.
A Special Purpose Vehicle, or SPV for short, is where the funds usually go when investing with a developer loan note. Sometimes the investment can also be spread across multiple sites (or SPVs). For example, if one of their other property developments fail, then the whole company is protected, and so is your investment to a greater degree. It is best to do your research on your chosen developer beforehand to get an idea of how successful they are, what their track record is like and a timeframe for their developments. Ultimately you’re investing in the team behind the development activity so do your due diligence!
An example of a successful developer is expert panellist Nicholas Wallwork’s company, Redbrick. Their property portfolio of circa £30 million comprises over 35 years of combined property investment experience, so you know your investment is handled with care and precision. Investments start at £100,000, and you are provided with incredibly high, passive returns annually for little to no effort. Visit Nicholas’ website for more information.
Property Joint Ventures
It may be worth considering teaming up with a seasoned veteran to benefit fully whilst also learning from their particular property development expertise. Some of the common advantages of property joint ventures are that they bring together experts in different fields and merge their two separate pools of contacts. Similarly, risks can be minimised with more experts on board and, as there are more heads, there are more ideas surrounding deals and strategy. Looking around for who may be the perfect fit for you, in more ways than just location or budget, is essential if you want to pull it off.
One disadvantage that is often considered with joint ventures is the dependence on another individual. To mitigate your risk, you need to complete your due diligence on your potential partner thoroughly. Before any joint venture is agreed upon, all the details need to be in place so you can have confidence your development project will run smoothly.
As one of the UK’s most accomplished property developers, John Howard’s Joint Venture Fund is a great example. John offers his hand in property joint ventures, allowing up-and-coming property developers the additional benefit of his vast experience and expertise where and when required. With profits split 50:50 and the possibility of 20-30% deposits upfront, find out more about the JH Joint Venture Fund to see how you could partner with one of the UK’s finest property developers today.
Contact an Independent Financial Advisor
Finally, if you have come up with a multitude of alternative ideas from those listed above, then why not contact someone who will be able to give you sound advice on which is best to choose? An Independent Financial Adviser (IFA) can advise on what they genuinely think meets your specific requirements. Being independent, IFAs do not act on behalf of any provider, product or body, so you will know you are getting truthful, impartial insights into your situation as an investor.
Paul Mahoney, another of our expert panellists, is a qualified and experienced Independent Financial Advisor himself. As the founder of Nova Financial Group, he and his team regularly and successfully advise thousands of property investors who are in the same boat as you. They offer every service required for property investment under one roof, so you do not have to deal with ten different professionals. Visit Nova Financial Group’s website to learn more.
If you would like to learn more in a detailed discussion-based format, then watch our Alternative Creative Financing Property Forecast episode. Emma Birchley hosted the programme, guiding the conversation to include all you need to know about Alternative Creative Financing and how you can benefit from each option.
Our expert panellists offer great advice to property developers and investors, looking at each financing option available to them and what has worked for them in the past. Make sure to follow our YouTube channel to stay up-to-date and register to join our exclusive VIP email list to get early bird access to our next upcoming live event, and access to our next Property Forecast 48 hours before it airs on Sky.