March 2019 – Page 2 – Property PFA

If you are new to the world of property development you may be unaware of the kinds of financing tht are available for these projects. Some types are more appropriate for certain kinds of development projects and the requirements attached to financing may vary from project to project. For example, you may need to put more money down and pay a different interest rate if you are purchasing a commercial versus a residential property. Here is a breakdown of some of the kinds of financing that are available.

Residential Property financing
Financing used to purchase a residential property is usually the kind of financing that people are most familiar with. This is because residential property financing is used to secure a persons primary residence. However, the type of financing that you would look for in order to purchase an income property or a property that is not your primary residence will often be very different than what you would be trying to secure for your own home.

Although there are set mortgage rates this is usually not the case with financing that is obtained for development projects. You will often need to provide information such as how much property development experience you have and what the scale of the project will be. The rates you pay will vary from lending institution to lending institution and from project to project.

You will often need to put more money down on a development project than you would on a property that you plan to live in. This will often include the building costs as well as the cost of the real estate that is being built on.

Financing for Commercial Properties
Like residential development projects, the rates you will pay to secure financing for a commercial property will also vary significantly. You may need to speak at length to lending institutions about the project and how viable it is. You may also find that there is a good deal more of involvement from a lending institution on a commercial development project than there would be on a residential development project.

A much larger deposit is often required for a commercial property and the interest rates are often higher. You may also need to provide a large amount of data and documentation surrounding the project that you want to begin working on. You may find that certain lending companies may be more willing to take on a commercial project than others will so dont be afraid to do a bit of searching if you are not getting a good response from the first lending institution you approach.

Bridging Financing
There are times that short-term funding may be required to be able to take on a development project. In this case you may want to look at bridging finance opportunities. They are usually for a period of not more than one year although different lending institutions will have a range of terms for you to look at and compare.

By learning what your different financing options are you will be able to get the money you need to be able to take on those property development projects you find most appealing.

Many lucky homeowners are using equity they gained during the recent bull market in real estate to purchase second homes. Leveraging one property in order to acquire another can be a solid investment strategy, as you increase your investment portfolio one step at a time, and one house at a time, by using each new asset to help pay for another one.

Banks will normally scrutinize credit reports and income documentation more stringently when you borrow to buy a second home, because they want to make sure that both of your mortgage obligations can be paid each month without a problem. And they may require larger down payments and charge slightly higher loan fees or interest rates than they did when you bought your first home. Nevertheless, many homeowners find it easy to qualify for new loans, and this is especially true for those who maintain excellent credit ratings. With the potential to profit from your purchase through equity appreciation, the repayment of a second mortgage is often easier than it was for a first mortgage.

For those who plan to use the second home as an income-producing property, there are also available tax deductions. As a landlord, you can usually deduct such things as repairs, utilities, and even routine trips you take to visit your property and check on its upkeep. Many investors combine their use of the second home, so that it is rented or leased sometimes, and at other times it is used as a personal vacation home. When you arent making money by leasing it to others, you save money by not having to pay for hotel lodging at vacation time. A qualified tax planner can help you find all of the various tax advantages to spending your vacations in your own second home.

When applying to secure a loan for an income producing second home, it is a good idea to present your lender with a thorough business plan and any documentation that illustrates the practical income potential of the property. If the previous owner made a profit each year by renting it out as a holiday retreat in the summertime, your lender will be more inclined to have confidence in your own ability to manage the property for extra income. One good way to show income potential is to hire a professional appraiser, who can do a market analysis of your property by comparing it to similar income-producing properties in the same area.

Another popular way to finance a second home purchase is by using an equity line of credit based on the value of ones first home. Banks typically charge more interest for these loans, but you are able to avoid many of the closing costs that are associated with originating a separate mortgage. And regardless of whether you apply for a mortgage or an equity loan, you may be eligible for tax deductions of interest payments and other related expenses.

Month: March 2019

Types Of Funding Available For Property Development Projects

Leveraging Property To Buy Property