Real estate development remains a lucrative investment despite the current economic drop globally. A recent report from Knight Frank revealed that lower interest rates in Australia are expected to boost property assets’ investment activity. Those who want to succeed in their property development investments know they can only reap the rewards if they generate a significant amount of money. However, investors who are new to property development may be confused about the kind of property development finance they need to build their first developments. 

There are several property development finance options that all property investors need to understand before filing for their new property development project. Here are some of the commonly available choices to know what is best for both the investor and the property development. 

#1: Bridging Loan

Applying for a bridging loan for any property development allows investors to get a short term package to secure a loan fast. It is usually chosen by those searching for new properties to buy but still waiting for financing from the sales of their current property. The investors can utilise the loan for “bridging the gap” between the sale and the upcoming purchase. 

The investors may choose this type of financing if they do not want to put a dent in their pocket or let the opportunity of owning a potentially lucrative property pass.  

#2: Development Loans

Investors can choose to get financial assistance for property development with interest paid in advance or “rolled up.” In this case, the investor must have prepared planning permission on hand or have an agreement with the deal subject to secure the necessary planning permission. 

Those who will choose this property development option must also have a wide range of assets to provide security to ensure that the property project is financially feasible. This type of financing can allow investors to borrow at least 50% or 60% of the property’s purchase price. 

#3: Buy To Let 

Developers can apply for financing to buy a property and rent it out eventually through the buy to let mortgage. Investors can benefit from this loan if they have a high credit score and earn a specific amount per year. 

However, investors must keep in mind that this option may come with higher fees and interest rates. 

#4: Capital Repayment

Investors also have the option to get a buy to let mortgage placed on a repayment basis. It provides them with the protection of expecting the loan to get repaid when the term ends. However, the monthly payment may be slightly higher than the other types of property development finance since they must pay the capital debt and the interest simultaneously.

#5: Commercial Term

Mortgages under the commercial term finance option may provide at least 60 to75% of the property value. The expected rental income of the property will determine the amount that the investors will loan. 

Those who will use this option may have a challenging time finding fixed rates and may have higher interest rates than usual. But it will have a tax-deductible interest once the mortgage starts to rack up.  

Knowing the financing options for property development will benefit investors, especially those who just started to put their money on the real estate industry. It will help them decide which one will let them optimise their earnings while paying for the debt.