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Development Finance Returns on Investment

Development Finance Returns on Investment

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Development finance carries a variety of costs, and you need to know what profit you stand to make before you consider putting together an application.

Here, we explore what factors will impact your investment returns and how to evaluate the viability of the project before you invest any time.

For more information about securing cost-effective development finance, call the Revolution Finance Brokers team on 0330 304 3040, or drop us an email to info@revolutionbrokers.co.uk.

The following topics are covered below:

What Size of Property Development is Most Suited to Development Finance?

How Many Developments are You Anticipating Managing at Once?

How to Improve the Profitability on your Property Developments

What Size of Property Development is Most Suited to Development Finance?

Firstly, you need to know what sort of scale you're looking at. Development finance can help fund a much larger project than you'd be able to finance independently.

Most lenders require low deposit values. They will lend up to 77.5% of the GDV (the estimated project value once work is completed), and up to 70% of the initial investment to purchase the land or property.

Development finance is an excellent option for vast construction projects that can't be funded with different products.

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How Many Developments are You Anticipating Managing at Once?

Developers who aren't using any finance will need to invest most - or all - of their savings and assets into one development.

You'll need the cash for the land purchase, the build costs, and all the associated fees until the construction is finished and the property can be sold.

In most cases, that means being able to finance one development at a time.

Development finance means that developers can look to complete multiple developments at a time, and not rely on investing all of their savings into one property - which is a much higher risk scenario.

How to Improve the Profitability on your Property Developments

The return on investment (ROI) is critical - you need to be making a profit to invest time and money into developing a property.

ROI on developments with substantial financing are much higher than independently financed projects. As an illustration, here are two projects constructed by a recent client; one before working with Revolution Brokers, and one funded with our help:

 

Independently financed

Financed with Revolution

Total investment - land purchase and build cost

£3,248,652

£3,248,652

GDV - property value once work is complete

£5,080,000

£5,080,000

Cash invested by the developer

£3,248,652

£650,465

Total loan value taken out

£0

£2,598,187

The total cost of the financing

£0

£209,011

Project profit

£1,831,348

£1,622,337

Return on investment

56.4%

249.41%

This shows that, by investing £3.248 million, the developer made a 56.4% return, against a massive personal investment.

By investing a much smaller value of £650,465, and using development finance, they achieved a 249% return - and could finance multiple projects simultaneously.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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