Property development can be an easy way to make a profit; you simply need to buy real estate with a low value, develop it and sell it for a profit. But to get into the property-development business you will need financing. Without financing, your business is just an idea; access to capital allows you to purchase properties and pay the development costs. Many businesses have great difficulty raising capital, but fortunately, a property-development business has real estate to offer as collateral. By following these basic steps, you should be able to raise enough capital to get into the property-development business.
Invest your own money into your business. It is difficult to raise capital when you have no money at all, but having some money makes your business more attractive to investors and lenders.
Look to the three Fs for financing. The three Fs are friends, family and "fools:" the three groups of people entrepreneurs typically rely on because they are willing to make risky investments. Present your friends and family with your business plan and offer them the opportunity to invest in your business. Explain to them that a property-development business offers less risk than a typical start-up because the major business investment is in real properties, meaning that even if you do not turn a profit, you are likely to retain most of your assets. "Fools" include any other people who will listen to your business idea, including friends of friends and people you have done business with. Approach them in the same way as friends and family, but be aware that you will need to focus more on the profit potential.
Apply for a mortgage with a commercial lender using the money you have raised as a down payment on your property. The larger your down payment, the larger your potential mortgage will be. You will most likely need to present your lender with a business plan that explains how you intend to develop the property and turn a profit. If you have a solid business plan and enough capital for a down payment, your bank will be more likely to give you a mortgage that will cover the cost of the property and your development costs.
When looking for a mortgage, be sure to shop around and compare the offerings of various banks. Having multiple options will put you in a good position to negotiate with banks for a lower interest rate.
Tips and warnings
- When looking for a mortgage, be sure to shop around and compare the offerings of various banks. Having multiple options will put you in a good position to negotiate with banks for a lower interest rate.