Business / Your Money
5 Ways to finance your construction project
19 Dec 2018 at 14:45hrs | Views
Deciding to construct a building is a big decision. It doesn't matter if you're looking to build a tower block of 50 apartments, your own private castle or even just a straw hut. You'll need planning permission, architects drawings, builders and a chunk of money to pay for it all.
This is the real stumbling block for so many people; accessing the cash to complete the build. It's a common dream; especially with the recent uncertainty in the housing markets.
Fortunately there are several ways in which you can get finance for your construction project:
1. Construction Specialists
The first step for most people is to visit their local bank. However, these institutions are not set up for the provision of funds in relation to building projects. They generally do not know enough about the industry and the risks to feel comfortable lending.
However, if you talk to a corporate finance specialist you'll find that they have a variety of options open to you. The most attractive will be the construction loan which releases the funds you need in three stages; matching the stages of production.
However, the construction loan will need to repaid soon after the project is completed; you'll need to think about the best way to get this capital before you agree to the loan.
For example, if you're building the project to live in then you can apply for a standard mortgage after it has been finished.
2. Equity Release
Another option if you already own a property is to look into equity release. This is effectively a loan against your existing house. The terms will be similar to a standard mortgage. Of course the amount of funds you can access will depend on the amount of equity you actually have available.
You could always sell your house but then you may have nowhere to live during the build stage.
3. Family & Friends
If you have wealthy family and / or friends then you can consider asking them for the funds you need. This can often be the cheapest option as your loved ones will probably charge you a very low rate of interest.
However, think carefully before you do this. If you can't afford to repay them for any reason then it could result in a big falling out; you have to decide if that risk is worthwhile.
4. Selling In Advance
If your construction project is to build a number of homes then you can try to sell them from the plans. If you have enough interest and the buyers have the funds to pay you then you will be able to use this money to actually build the project.
It may not be enough by itself but it could well be enough to convince the bank the project is viable and get you the rest of the money you need.
5. Savings
If you're lucky enough to have savings then you may find this is enough to get the project started or even completed.
If you don't have enough funds it ill, again, be enough to convince the bank that you are serious. The greater the personal risk the more attractive the lending option looks to the bank.
This is the real stumbling block for so many people; accessing the cash to complete the build. It's a common dream; especially with the recent uncertainty in the housing markets.
Fortunately there are several ways in which you can get finance for your construction project:
1. Construction Specialists
The first step for most people is to visit their local bank. However, these institutions are not set up for the provision of funds in relation to building projects. They generally do not know enough about the industry and the risks to feel comfortable lending.
However, if you talk to a corporate finance specialist you'll find that they have a variety of options open to you. The most attractive will be the construction loan which releases the funds you need in three stages; matching the stages of production.
However, the construction loan will need to repaid soon after the project is completed; you'll need to think about the best way to get this capital before you agree to the loan.
For example, if you're building the project to live in then you can apply for a standard mortgage after it has been finished.
2. Equity Release
Another option if you already own a property is to look into equity release. This is effectively a loan against your existing house. The terms will be similar to a standard mortgage. Of course the amount of funds you can access will depend on the amount of equity you actually have available.
You could always sell your house but then you may have nowhere to live during the build stage.
3. Family & Friends
If you have wealthy family and / or friends then you can consider asking them for the funds you need. This can often be the cheapest option as your loved ones will probably charge you a very low rate of interest.
However, think carefully before you do this. If you can't afford to repay them for any reason then it could result in a big falling out; you have to decide if that risk is worthwhile.
4. Selling In Advance
If your construction project is to build a number of homes then you can try to sell them from the plans. If you have enough interest and the buyers have the funds to pay you then you will be able to use this money to actually build the project.
It may not be enough by itself but it could well be enough to convince the bank the project is viable and get you the rest of the money you need.
5. Savings
If you're lucky enough to have savings then you may find this is enough to get the project started or even completed.
If you don't have enough funds it ill, again, be enough to convince the bank that you are serious. The greater the personal risk the more attractive the lending option looks to the bank.
Source - Byo24News
