Property developers often consider joint venture financing as a popular way to raise funds required to invest in a development project, without having to use personal funds to pay for a deposit.
The Revolution Brokers team has compiled this guide to explain the three primary ways of using joint venture financing for property development.
For further assistance with development financing options, and finding the most competitive lending for you, give us a ring on 0330 304 3040 or email the team at firstname.lastname@example.org.
How Does 100% Development Finance Work?
Joint venture finance is also called 100% development finance. No deposit is needed, and the lender will put up 100% of the budget required.
In return, they get a share of the profits; usually between 40% and 50%.
Developers seek out this type of lending since the funding provider is usually well established in the market.
Private Investors as a Joint Venture Development Finance Partner
You can work with a private investor as opposed to a funding provider. In most cases, you will need to set up a limited company called a Special Purpose Vehicle.
The SPV holds ownership of the property, with the developer and investor having shares or interests.
In this scenario, it is essential to work with a reputable investor, since you don't have any third party involvement, or regulatory oversight if things go wrong.
We don't recommend approaching multiple investors, as there is potential for exposure to unethical investors, so it's wise to seek out a partner from a trusted source.
How Does Senior Development Finance Work in Property Development?
The third option is to work with a private investor to raise the required funds and then raise the total required through a senior development finance broker.
As a lower-risk option to working independently with an investor, you have the support of a broker and a separate finance partner so avoid losing control over the development.
Using development finance reduces the required investment from your private partner, and makes it a more straightforward proposition to pitch. The investor likewise gets a good deal, as the investment value is smaller, and the return higher.