It’s no secret that the economy is on the rebound and all the economic indicators that go with it are on their way up. The job market is reaching levels that haven’t been seen in over a decade. Interest rates are still low which is spurring growth in the housing market. It’s no wonder that we have seen developments popping up left and right. New players in the housing and construction market are getting into the game. The question is really becoming, how can I obtain the financing necessary to spur development without spiraling into debt?
While not always a popular option you are able to borrow from friends and family. This option often comes with a large grace period and low to no interest rates. The problem is that you might feel obligated to a friend or relative. Not to mention the conversation to borrow money from a loved one is not a very comfortable one. Still, if it is a possibility it could be the cheapest way of getting the funds you need to start development and paying back the loan.
Another possibility is obtaining bridging financing. Bridging finance has a bit more leeway than your typical bank loans. Usually your specific project you want to fund is looked at and considered in the loan approval, not just rates and credit history. As with most loans you need to have collateral that backs the loan amount, but in this case it is usually the property you are trying to renovate or develop. Based on the value of the property they will then determine the amount of money to loan to you, and as you continue to develop the property and increase the value you will be able to borrow more against it as time goes on. In the end, the lender is most likely willing to lend out 100% of the project cost needed, which is unusual for other more traditional lending institutions.
Crowd funding is becoming increasingly popular. It is a less intrusive way of borrowing money from family and friends. Not to mention that ability to ask thousands of people you don’t even know for the funds. The funds are usually donated in small increments in exchange for novelty gifts, like naming rights to the building, etc. Though there are some new for-profit crowd funding sites popping up and offering ownership equity for each investment made. Only time will tell how regulators will scrutinize this type of investment.