How to Raise Money for Property Development

by Contributing Writer ; Updated July 27, 2017
Frame of a new home

Over the years, real estate has proven itself to be a sound, long-term investment. People always need homes to live in or a place to put their business. The harsh truth about real estate investing, however, is that it needs money. From buying the building to the costs of labor, materials and fees, the developer needs to raise a substantial up front sum before he can unlock the rewards.

Step 1

Contact a mortgage company that specializes in providing money to investors and developers. Often, these companies can provide the whole or a substantial portion of the sum you need to develop the site. Niche mortgage companies, who cater to developers, differ from a bank as they are more prepared to take on a degree of risk. It is likely you'll pay for that risk in higher interest rates.

Step 2

Ask friends and family to contribute. They can either loan you the money at an agreed interest rate, or take a stake in the project. In the latter scenario, each investor takes a share of the profits when you sell. Document the terms of your agreement to avoid disputes. If possible, have an attorney draw up the paperwork.

Step 3

Contact a private investor who does not wish to develop real estate himself, but has capital to invest. You can structure the investment however you like; typically, you guarantee the investor his money back plus a percentage. To attract investors, you'll need to show that your project can generate higher returns than the investor could get elsewhere, for example, stock investing or money in the bank.

Step 4

Use your own money and start small. You don't have to take on a huge house or an apartment building to successfully develop property. Instead, use a combination of savings and loans to buy a small house, fix it up and then sell it. By using the sale proceeds to fund your next property, you can soon move on to bigger projects.

Tips

  • Starting small might not seem like the ideal way to generate good returns, but the less money you're wasting on interest, and the fewer people involved, the more money you are going to make in the end.

Warnings

  • Real estate development is still an investment and nothing is foolproof. Make sure you do research on the area before buying a property and trying to develop it.

Photo Credits

  • Christian Delbert/iStock/Getty Images