| Like any other business venture, a property | | | | Knowing this reduces the risk so much more. |
| development needs to be funded. It is quite usual for | | | | Another point to consider is what experience the |
| a bank or lending institution to fund a developer up to | | | | developer has as a developer. By that I mean one |
| a certain percentage but then the developer needs | | | | that has covered a project from beginning to end. |
| to find Joint Venture investors for the balance or at | | | | There is a difference between an experienced builder |
| least a good proportion of the balance. | | | | and a developer. The developer has to know many |
| This is where Property Developers will seek Joint | | | | more facets of the industry and also has to keep an |
| Venture investors to enable them to finalise a | | | | eye on the finances which is critical to the financial |
| project. | | | | success of the development. |
| Many years ago banks strengthened their lending | | | | Areason for developers to seek the full funding of a |
| criteria and required developers to pre-sell a certain | | | | development is to keep some of their own funds in |
| percentage of units in a building before they would | | | | reserve in case they get offered a great deal on |
| agree to the loan and that is why you will often see | | | | another prospective development site. By not being |
| a vacant lot with a sales office on it. They are | | | | able to move on these deals developers can miss out |
| obtaining the required number of pre-sold units | | | | on quite substantial profits. |
| houses or whatever so that they can finalise a bank | | | | Developing properties takes such a long time from |
| loan. | | | | the time of first looking at a block of land that |
| Once the required number of pre-sold units/houses | | | | developers need to keep their business rolling by |
| are sold and the bank loan secured, a developer will | | | | having other properties in the research stages whilst |
| look for further funds. Once the bank loan is | | | | building another. |
| approved it is usually all go for the developer. What | | | | If as an investor you find a developer that you can |
| this means though, is that there is about another | | | | communicate well with, trust and respect, it is |
| 30-40% of funding left to find if he is going to fully | | | | possible to keep your funds with them for quite |
| fund the development from outside sources. | | | | some time. It would be suggested that you have out |
| At this point in time going into a Joint Venture is a | | | | clauses every few years to release funds if needs |
| relatively safe investment. | | | | be so you do not end up with penalties, but it could |
| It is not advisable to go into an investment unless | | | | be that you keep your initial investment with a |
| you know the particular property being developed | | | | developer for 10 years or more. |
| and that it already has bank approved funding. | | | | |