Real estate development financing is not just about getting a loan to acquire land for your business expansion project. It also includes financing the improvements that you intend to build on that land. Under this type of financing package, you get funding that you need to acquire the land for your project, as well as the needed funds to develop that property. This is why real estate development financing is a more viable option for companies that wish to expand their business operations, as opposed to regular mortgage financing.
With mortgage financing, you are essentially buying a property that you will own for the long term. While this type of funding package has its own good points, it might not be a good option if you intend to develop a project that you plan to sell after completion. There are many people who try to buy the land and use mortgage financing to build improvements on that property. They later discover that they will first have to release the mortgage and then borrow an adequate amount for use in their real estate development. When you really look at it very closely, it is more expensive compared to real estate development financing.
Under real estate development financing, your entire project will be financed by a bank or a financial institution, of which the land that you are developing form one part of the project while the building comprise the other part. After the project is completed, you can then sell the project that you have developed and use the proceeds to pay for the real estate development financing you received.
It is also possible to retain some portions of the project you developed. You can do this by paying the financial institution that funded your project, then take out a long term mortgage for the portion that you want to own for the long term. This what some developers do in huge projects like business complexes, where they sell several buildings and other facilities to interested clients, while retaining one or two buildings for their own use.
What you need when applying for real estate development financing
Real estate development financing is not something that can just be applied for by any business. In fact, the rules and requirements governing this financing package is so complex that only a few may be able to avail of such funding opportunity. Although there are financial institutions that are a little bit loose when it comes to their requirements, you still need to show them a solid financial plan that will show, among other things, a detailed outline on how you intend to pay back the financing.
You also need to furnish the bank or financial institution where you intend to apply for a real estate development financing, a comprehensive development plan that details the costing, as well as the projected revenue of the project. Naturally, you need to provide them a realistic feasibility study, which takes into account various economic factors that can cause a positive or negative impact on the entire project. However, with a solid business and financial plan, as well as the right sales pitch, you might just secure a real estate development financing for your project.
Source: http://www.startuploans.org/real-estate/real-estate-development-financing/
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