Financing A First Development

Finances. Arranging Finances For A First-Time Property Development

Arranging Finances For A First-Time Property Development
How Much Can I Borrow?

If you're a property developer wannabe, if you've got the energy, ideas and inspiration, if you've done some research, found some places with potential, and all you need is money - where do you start?

By Caroline Bloor

House on Stilts. Finances for first time property developmen

Is Your Development A Good Investment? Can You Afford It?

Before you buy, it's vital to make sure the property you're thinking of taking on is a sound investment. You'll need to calculate:

The initial costs involved with buying the property (purchase price, deposit, professional fees).

The renovation costs (labour, materials, fixtures and fittings, furnishings, decoration and removal/storage).

The day-to-day running costs (mortgage repayments, administration costs, insurance, utilities).

A realistic resale value (bearing in mind location, the renovated property itself and market conditions).

Subtract the first three from your resale value figure and what's left should be your potential profit. This should tell you whether to proceed up the ladder with this particular property or not.

Monitor The Property Market

It's important to keep a close eye on house prices in the area you intend to buy, so think hard about the timing of your first project. If necessary wait, monitor the market and build a healthy deposit, so you're ready to roll when the conditions are right. Keep up to date at websites such as Hometrack and www.nethouseprices.com for regular fixes on market conditions.

How Much Can I Borrow?

Most of us have to take out a mortgage in order to buy a property. Exactly how much you can borrow will depend on the size of your deposit and your income (as a general rule you can borrow up to three-and-a half times your salary). Banks and building societies have tightened up their lending criteria in the aftermath of the credit crunch and are now be looking for consumers to put down a bigger stake than they would have had to just a couple of years ago. Is the amount you can borrow enough to cover all the costs involved and still leave room for a profit when you sell?

Raising The Funds

Finding the right mortgage can be a daunting task. An independent financial advisor who specialises in mortgages, insurance and tax issues will be able to advise you on all the options (visit www.unbiased.co.uk for local IFAs). But do your own homework, too. Use the online mortgage calculators to compare deals (such as www.moneysupermarket.com and www.moneyfacts.co.uk).

If you can't afford to invest in a property on your own, consider buying with someone else. You can apply for a joint mortgage for up to four people, although calculations are usually based on the incomes of just two. Or you can take out a guarantor mortgage with a parent or family member who is willing to guarantee the loan. The lender takes your guarantor's income into account as well as your own; you make the repayments but are jointly liable.

Specialist Mortgages

There are also lenders who take a particular interest in renovations, conversions and eco-builds. Ask your independent financial advisor to talk you through them.