- 16th May 2023
- Posted by: DMM
- Categories: Development Finance, Joint Venture
This is possibly the most frequently hear question in our average working week but yes, 100% property development funding IS possible! There are different ways to structure such funding which may include an equity investor or JV partner. The key to achieving 100% development funding is having the right combination of principle factors in place; a project with a strong financial return, the right project type and, a team with the necessary experience.
100% Property Development Funding – What are the criteria?
The following are the key elements to potentially qualify for 100% funding;
- Strong profit: Your project will have to have a return of no less than 25-30% on GDV (before finance costs). If your project means that you’ll be built and the lender repaid within 12 months then a return of 25% on GDV will be considered. For terms of up to 18 months (the max possible), you’ll need to have a return of close to 30% on GDV.
- Development type: New built houses with achievable asking prices that, therefore, appeal to a broad potential market will give the most confidence to a lender. Flat developments and conversions of historic buildings are not necessarily ruled out but will certainly be much harder to place without a convincing business plan. Full planning consent will be required.
- The right team: Whatever your project, you will need to show that you and your team have the experience to match the demands of the design. If you are a developer, this may mean partnering with an experienced contractor.
Developer Money Market is an independent specialist in property development finance with more than 120 lenders on our panel providing over 320 loan products.
What’s on offer?
If you can tick the above boxes, then this may open up the following facilities for 100% property development funding;
- Loan amounts from £600,000 to £10 million for total acquisition and build costs
- Terms from 12 – 18 months
- Available across the mainland UK
- Some lenders may not require PG’s
- 50/50 profit share is typical but can sometimes be negotiated
- Development technical support
100% Property Development Funding – What’s the Catch?
Naturally, when a lender is taking all of the financial risks then, as you may imagine, this will not come cheap. Interest rates on the funds drawn down will be in the range of around 1.33% – 1.5% but there are no exit fees with profit being shared typically 50:50.
Be aware too that you will have to fund everything up to the first drawdown and so any pre-commencement costs, legal costs and initial build costs (for example ground works) will have to be cash flowed by the borrower.
If you can put in a small equity contribution, say 3-5% of total costs, then this will open up futher JV and equity partner options including funding to £150 million. We’ll cover that in another post!