Financing Real Estate Development by primusboy


									Financing Real Estate Development!
If you are new to financing real estate development you'll have to change
your thinking. No doubt you are very familiar the 15 to 30 year mortgage
finance tool.
You may even have used a 'Line of Credit' as an alternative way of
financing as you increase you cash wealth. Both of these methods are used
primarily for financing real estate property acquisitions.
I can hear some of you say, "But I used these for redeveloping a house or
a few apartments."
Well that is not what we, in the development world, mean when we say real
estate development; we call that a renovation or a refit.
So financing real estate development is financing a completely new
development and mortgage financing is not the correct tool for the job.
So How Do They Differ?
The easiest way is to give you a quick comparison between a mortgage
financing and financing real estate development.
With a mortgage you essentially are buying property; be it land or a
residential house on land, or an apartment ... and you are buying it to
own for the long term; that is 15 to 30 years.
When financing real estate development you are looking at financing an
entire project, of which the land is one tangible part and the other part
comprise building Plans.
At completing of the project you plan to sell all of what you have
created and repay the financial institution what you borrowed for
financing real estate development.
You might ask, "What if I want to keep some of what I have created and
not sell everything? Great question.
The answer is simple. All the money you get from the sales of your
product is paid back to the financial institution and you then take out a
long term mortgage for the product you want to own long term.
Just to be clear on that point
All of the products you sell will include a profit. So by careful
calculation and planning you can balance the number of products you
retain, so that your profit is left as equity in the investment and the
amount of mortgage borrowing is minimal.
Depending on your taxation rules in your country, leaving money in the
investment as suggested, is a way of not 'realizing' your profit in a
cash form and so attracting tax. But naturally you should check out your
local tax laws.
Now back to financing real estate development.
As mentioned earlier, you are not just buying land when financing real
estate development. You are asking the financial institution to approve
the purchase of the land, as well as the construction of the whole
To arrive at the position where you can make a Financing Real Estate
Development Application, you will need a set of approved development
plans, costings and a Real Estate Development Feasibility Study.
Many people who want to get into the development business, make the
mistake of finding and buying land 'first" and borrowing mortgage
financing, which is what they are used to doing.
Only to find out later that they will have to discharge the mortgage and
borrow the correct funds for financing real estate developments all of
which costs money.
This can be taught to you the right way!
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