Beyond Buy To Let –  Raising Finance for Complex Property Developments

Britain’s ‘buy to let’ boom has encouraged huge numbers of people to invest in residential property as a means to secure income and growth.

On the face of it, the ‘buy to let’ market is dominated by relatively unambitious investors. According  to a Council of Mortgage Lenders report (The Profile of Private Landlords) around 60% of landlords own only one rental property and only 7% possess five or more. But the devil is in the detail. That 7% of landlords account for 40% of rental properties – this represents a huge swathe of a market that generated a collective income of £54bn in 2017, according estate agency Savills.

Arguably those with multiple  portfolios are no longer characterised simply as ‘buy to let’ landlords –  they are property entrepreneurs who may well be drawn to increasingly ambitious deals and projects. And there is a whole world of entrepreneurial activity that lies beyond the ‘buy to let’ market. As confidence grows there may be opportunities to create new housing developments from scratch or convert commercial property into  apartment blocks, either for rental or sale.

A Different Approach To Funding  

But bigger projects inevitably require a different approach to funding. One of the attractions of  buy to let at its most basic is that the purchase of a few properties can be facilitated by specialist mortgages or in some cases from savings. That’s not the case when an entrepreneur begins to look at development opportunities that extend beyond the purchase of a property for resale or rent.,

A development project could mean something little more than a bit of light refurbishment that would enable an existing house, group of houses or an apartment block to be rented out or sold at a premium. More ambitiously the development could involve a major refurbishment – for example a restructuring or repurposing of the building. And of course, the property entrepreneur could be thinking in terms of a ground-up development of new homes or offices.  

Depending on the scale, complexity and timespan of the project, developers have a range of financial options. In some cases, a bridging loan might be the most appropriate solution – for instance when a refurbishment scheduled to take place over a period of months will end in a sale  (or alternatively, a mortgage arrangement), which will allow the short-term finance to repaid. On bigger projects, the entrepreneur is more likely to need a development loan. In the case of a ground-up development that might involve two sums – one for the building work and another for the purchase of the land.

Getting off the Ground

Development loans are not a complete solution. Typically they will only cover a percentage of the land purchase and the build, leaving the developer to make up the balance. However, they do represent a tried and tested way to get a deal off the ground.  

It’s undoubtedly easier to secure debt finance to support a development project if the entrepreneur can offer security to lenders. To some degree that is likely to provided by the value of the property under development, but those who have already built a portfolio are in a good position to borrow more against the value of pre-existing assets.   

But securing debt finance is not always easy, even for experienced developers. For instance, more complex deals may fall outside the risk criteria of established lenders, including high street banks. Equally, developers without a long track record may find it more difficult to borrow, even if their business plans are sound.  

But there are, increasingly, opportunities to raise capital from new sources. These include, The Route – Finance is a Private Debt Platform set up to lend to entrepreneurs, with the funds coming from a community of High Net Worth Members. All the Members are sophisticated investors who have pre-mandated funds to support viable business plans that have been identified and vetted by The Route’s team.  

Increasingly, The Route is seeing opportunities recommend a range of property projects to Members and provide the capital required to ensure that developments can be undertaken and completed. To date the projects, which collectively have lent over £120M, have ranged from the ground-up development of new homes to the purchase and refurbishment of an extensive estate of lockup garages. The common factor is a well thought out business plan.

To find out more about The Route – Finance’s experience in backing property developments call:  020 3141 9040


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