If you are considering a development project, you may be wondering how to start looking for the finance. There are lenders who specialise in providing property development finance. When they are considering whether to make an offer and at what level, there are two main things they need to know: the risks, and the profit potential. So before approaching a lender or a broker, you would be well advised to do your own research, so that you already have the information available. It will be assumed you already have planning permission for your project – the lender probably won t look at it if you haven t! First of all you need to calculate the total cost of the project – otherwise you can t calculate the profit potential! This will include at a minimum: • Purchase price of the site, or of the property to be developed. • Costs of building or refurbishment. You will need to obtain initial estimates from any contractors you will be using. It may be wise to over-estimate these, given how common it is for project costs to go over budget. • Stamp duty – based on the purchase price. • Fees for professionals. This depends on what the project is, but at the minimum it is likely to include surveyor, valuer, solicitor and architect. The lender might commission their own survey as well, but this shouldn t stop you from having your own done. • Deposit. Unless you can be sure of getting 100 per cent finance, which is unlikely unless you are very experienced, your will have to find a deposit of anything from 30 – 50 per cent. • Interest charges on all the finance, allowing for interest rate rises if these are on the cards. • Planning fees and search fees. Once you have a clear idea of the costs, you can begin to calculate the profit potential. • Identify your target market. You need to research the area and identify the results from similar locations. Enlist the help of estate agents. • Professional valuations. Your lender will require a realistic assessment from a professional valuer, both of the current value of the site and of the potential value of the development. This will help the lender asssess the viability of your project. The surveyor and valuer will also identify whether there are any potential snags to the project - e.g. flood potential, or the presence of gas mains etc. - and thus help the lender assess the level of risk. The other factor in assessing the level of risk is your degree of experience. If you are a total novice, you will be seen as a higher risk. But don t let this deter you – everyone has to start some time. Don t be too leisurely about doing this. In property development finance, time is crucial. If there is a delay in agreeing the finance, you could lose the site to a competitor, or costs could have escalated. The more efficiently you can do your work, the more it will help you obtain the right level of finance for your project.

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