Do you dream of being your own boss and making a living building beautiful properties but have no idea how to find the funds to get started?
Read on to learn about some of the most well-trodden paths to successful property development and how to get into property development with no money.
Build a Strong Foundation
Before seeking out funding, ensure you have the necessary mindset, skills and knowledge to succeed as a developer.
Visualise Your Success
An essential foundation for success as an entrepreneur in any sector is adopting the right mindset. Visualise your success and believe that you can achieve it.
Entrepreneur and billionaire Richard Branson has been quoted saying, “if your dreams don’t scare you, they are too small.” Dare to dream big for your new property development business and tell yourself that you will make these dreams a reality.
Throughout your life, you have been developing a set of attitudes and beliefs about money — your money mindset. If you believe things like “I will only ever earn X” or “I’m not good enough to run a successful business”, this will hold you back. As an entrepreneur, you need to be self-aware and develop a positive, can-do mindset before you even think about the practicalities of starting a business. There are plenty of books available to help you learn about money mindset, or you could work with a business coach to help you become more self-aware.
Learn about the Industry
Starting out in property development is a big commitment, and there are many different areas you could branch into. Take time to research the industry and understand the options available to you — in terms of financing and the type of developments you could invest in, what skills you will need to develop or hire and what kind of income you can realistically expect.
Get Some Hands-on Experience
If you lack the funds to start your own property development business, consider seeking employment in the industry to build your skills, knowledge and connections before taking the plunge. Use your research into the industry to wow prospective employers with your knowledge and commitment to learning.
Make a Plan
Decide what kind of developments you are interested in — location, size, commercial or residential — and write a comprehensive business plan that sets short, medium and long-term goals. This is an essential step in establishing your business and securing the finance necessary to get started. Use a free online business plan template or work with a professional finance and business advisor to ensure you are crystal clear on your budget and financing.
Property Development Funding Options
There are many ways to raise capital for your first small development project, either through informal means or commercial financing.
Release Equity from Your Home
If you have funds, but they are tied up in your home, equity release will allow you to free up this cash for your first development project. However, be sure that you’re happy to take on the risk of losing this capital if your development is not profitable. Borrowing against your home in this way will also attract added interest rates which can quickly add up.
If you have family or friends with considerable disposable income who may be interested in property development, consider speaking to them about a loan or an investment. The old caveat about mixing business with pleasure is certainly one to be aware of. Only consider this option if you are confident that your relationships are strong enough to withstand the potential stress and uncertainty of property development. And ensure that your friend or family member is aware of the risks involved.
There are many different types of commercial finance available to property developers. Speak to a financial advisor who specialises in the property market to discuss what funding options are available to you. This will depend on your current financial circumstances.
If you’re planning to focus on developing commercial properties, such as shops and warehouses, you can apply for a commercial mortgage much the same as you would apply for a mortgage to buy your home. This is a sensible way to spread the cost of purchasing a development property. However, it is more difficult to secure this type of funding as a startup.
A Joint Venture
There are several types of joint venture (JV), but they all involve two or more parties partnering to fund a commercial enterprise. A JV will allow you, as a new developer with no money, to benefit from the resources of a more established property professional or professionals. You may also be able to access land that you could not secure independently. This is a low-risk way to secure the funding you need to get started while improving your skills and knowledge. Speak to a financial advisor specialising in property development to choose which type of JV is right for you — a contractual development agreement, a private limited company or a partnership or limited company.
If you’re starting small — which is a sensible idea — with one property, a buy-to-let (BTL) mortgage is a good way to obtain the finance you need to get started. Shop around for the best rates. If you have larger-scale plans, you’ll need to source additional funding.
Auctions are a great place to find a bargain. Many properties go to auction because they need significant work or would not sell easily via the traditional estate agent route for some other reason. If you’re looking for an affordable property for your first development, this could be worth exploring. Some lenders specialise in auction finance, so you can arrange a loan to buy a property at a bargain price.
Bridging finance can be used to both acquire and refurbish a property. These short-term loans can be used to help you “flip” your first development project as quickly as possible. You can then repay the loan from the proceeds.
First-time developers can access a broad spectrum of property development finance. You can also raise funds by selling assets, for example, if you own a second home.
Once your business is up and running, HBB Solutions can help you attract buyers and keep your development plans on track by providing your customers with a guaranteed, risk-free sale of their existing property.