There is a vast difference between standard retail property finance and property development finance. In simplest terms, it is the process by which real estate developers gather funds for a target property. The usual process includes borrowing capital from the outside to purchase or develop the property in question.
Now, naturally, the interest rates for property development finance are different from the retail property market. One can easily use the development finance calculator here and find out the difference. Certainly, you would be disappointed with what you have to pay back to the lender. But luckily, several ways are there that you can get the best rates of property development finance. Here’s how.
But before going into the various ways one can get the best rates for their property development finance, it should be noted that it is advisable that one connects with a professional consultant for this task. It goes without saying that there are multiple factors that impact the interest rates of development finance, many of which are not related to both the property and the developer. It is best that one hires an expert that could assist them with the procedure.
Now, without further ado, here are some ways one can lower the interest rates and get the best deal for their redevelopment finance.
Have a strong exit strategy
The exit strategy is everything when it comes to being successful in a property development plan. This is something that the financier of the development finance would look at well. Without a strong exit strategy, it would be extremely unlikely that any lending institution would be waiting in line to finance its scheme.
Exit strategy usually includes the sale of the property in question or at least refinancing the debt into the mortgage. The stronger your exit strategy is and the likelihood of it going off without any hitch, the better position you would be in for the lender to offer you favorable interest rates. So, naturally, it is the first thing you need to start with – building a better exit strategy.
Your personal credit history
Your personal credit history also plays a crucial role in determining the likelihood of financial institutions financing your scheme, let alone giving you a favorable interest rate. If you have a bad credit history, missed payments, unpaid dues, or even bankruptcy in the past, then the lender would be hesitant to borrow your money for your property development finance scheme, regardless of how great it may be.
The same is the case with any of your partners as well. If any of them have a terrible credit rep or have been blacklisted by lending institutions in the past, then it would be doubtful that you would be able to get a favorable interest rate for your development finance.
It does not take a genius to figure out that the folks that usually get the best interest rate in property development financing are the same folks that have been active in the industry for a long time. It makes sense as well, as these developers have already done business in the past and quite successfully.
So, it would help if you had someone who has experience in the industry with you during the process, as this would lend you credibility among the lenders and help get that interest rate down.
Making large deposit
Another way you can encourage the financial institutions to not only finance your scheme but also at a lower interest rate as well by putting a large deposit as additional security. This naturally showcases your intention as well as faith in your property development plan.
It is something that usually persuades the lenders to be more generous in the terms that they can offer for your development financing. After all, who wants to waste their own capital on something that is sure to fail.
The size of the loan
The size of the loan also plays a considerable role in determining whether the applicant would be financed for their development scheme or not and at what interest rates. The risk of the loan default grows with the size of the loan as well. Depending on the risk factor, fixed or variable interest rate would be offered by the lender.