5 Tips Property Developers Need To Know About – Part 2

Last week I started a series called “5 Tips Property Developers Need To Know About”.

These are tips I’ve picked up over the years working with property developers arrange the finance they needed to carry out their projects.

Last week I looked at the first two tips, and this week, I’ll give you the other three.

Tip 3:

A good commercial solicitor is worth their ‘weight in gold’.

The complaint I hear most often from lenders is that there have been unnecessary delays caused by the borrower’s solicitor.

The problem is that very often clients embarking on a development use their family solicitor. This means they may have used the solicitor twice in the last 10 years – once when they moved house and once when they made their wills.

And now they’re asking their solicitor to become involved in a potentially complex commercial transaction and the solicitor is simply not up to the task – hence the delays.

My advice – get yourself a good commercial solicitor – someone who has experience in dealing with complex property transactions.

Do your research, get personal recommendations, go and meet them, ask to speak to some of their previous clients.

By all means ask us at Funding Track – we have a number of top solicitors we work with on a regular basis.

Choose your solicitor with care – someone who you can build an ongoing relationship with. You’ll be glad you did, and it will pay dividends in the long run

Tip 4:

Just because you don’t have any cash doesn’t mean you can’t do a deal. 100% funding is available.

I often have an initial discussion with a developer client and their opening line is: “I’m not sure you’ll be able to help me as I don’t have any cash to inject”, or “I don’t have enough cash to inject”.

Please don’t see this as an insurmountable problem, because it isn’t.

I have helped many developers over the years where they had no cash to inject and required 100% funding.

The solution? Using other property as additional security. If you own your main residence, or you have a buy-to-let property, even if it has an existing mortgage on it.

Providing there is available equity in another property you own, development lenders can use it as additional security thereby achieving the 100% funding you need!

Tip 5:

Think carefully about who is carrying out the project.

This might seem an odd one, but it’s important for the lender to know who will be borrowing the money. It’s also important that you plan ahead on this point.

Will you do the development in your own name, are you doing it in joint names with a partner. Or perhaps you may decide to do the project in the name of a limited company.

One common way to structure a deal is to do it in the name of an SPV – which stands for ‘special purpose vehicle’.

An SPV is simply a limited company set up for the sole purpose of doing the development project you have in mind.

The advantage in doing it this way is that you ‘ring-fence’ the development project avoiding cross-over with any other business activities you may have.

It is particularly useful where you are embarking on the project with a partner as the shareholding is clearly laid out from day one.

Obviously, you need to be sure of the tax implications whichever way you decide to structure the project, so plan ahead and make sure you speak to an experienced accountant before you start the project rather than wait until you’re halfway through.

• Do you have a property development project you are looking to undertake?
• Do you need funding?
• Would you like to speak to an expert?

Then please give us a call on 020 8949 2122 or email us at keith.park@fundingtrack.com