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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 Brokers team on 0330 304 3040, or drop us an email to info@revolutionbrokers.co.uk.

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.

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.

Check out our handy calculators

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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