How to Get Investors for Property Development
Today, you'll learn how to source investors for your property development projects.
We all know the challenges that present themselves when entering the real estate investment market. Working out which sector or area you want to invest in is only part of the battle. Funding your investment and finding investors can be the real challenge. If you have decided that you want to get into property development, you are going to need to find funding through investors. But this can be easier said than done. So, what are some ways to get good investors for your property development project?
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What exactly is property development?
Before we start working out how to find investors, we need to establish exactly what we are wanting the investors for. If you are wanting to enter the world of property development, what does this mean? Medium mentions that property development is all around us. If we are surrounded by real estate, then we are surrounded by real estate development. And for those who are interested in investing in property or real estate development, this means the process of developing buildings or land into a high use value.
Property development is more than simply purchasing property. It is the raising of the value of that property for investment purposes. If you are a developer, you could say that your job is to add value to any properties you own or manage. Property development has the potential for very high returns. However, like anything in real estate it comes with risks.
What are the best ways to manage risks with property development?
Property development like any real estate strategy has the potential for high returns, but also for major risks. If you are looking for investors for your development projects, you will need to demonstrate that you are able to mitigate these risks in order to create a sense of security. After all, it is not only your money that is at risk with some of the large development projects. Property Development System highlights some of the key ways to best manage potential risks.
- Consider all external challenges. Including environmental conditions, economic instability, social issues, and even political factors. Every area is going to come with its own set of challenges, and these need to be considered before jumping into a development project.
- Location is the most important factor. The location of a development can quite literally make or break a project. You could have the best team available and unlimited capital, but if you choose the wrong location, then you are setting yourself up for failure. You can examine projects in the area – how well are they doing? Are there any fluctuations in the market that could affect the development?
No matter what source of funding you choose, there will be risks. But with some management these can be managed, and even used to the benefit if your project.
What are methods for sourcing investors?
Unless you have a large contact list of savvy investors on speed dial, you will need to source some outside assistance to help fund your project. One common way is mentioned by Gower Crowd as being the following:
Believe it or not you are able to raise money online using digital marketing and social media. This is one of the times when the large online presence can really come to your advantage. You no longer need a direct connection with potential investors. You can source your capital from numerous small investors. And there are countless online methods for finding them.
Family and friends
Do not underestimate the people you already know. You may be surprised who in your inner circle will be open to investing with you if you give them the chance. Lend Invest does warn that there is a risk to using people that you know, and that is that it can have a bigger impact if something was to go wrong. You will want to make sure that there is a lot of trust and understand when investing with someone that you already have a relationship with.
Another common way to source investors for real estate projects including development projects is to find investment groups. This is where potential investors will be on the lookout for lucrative investments. So, if you think you have a good development idea, then you could have plenty of investors fighting for the chance to work with you.
You may find it difficult to get sufficient funding for your development projects. A lot of projects require high capital and because of the risks, you may be faces with resistance.
Can you use a loan to fund real estate developments?
While it is always going to be preferred to have a few investors assisting with the funding of your real estate development projects, it is actually possible to finance using a loan. There are loans by certain lenders specifically for real estate development. These tend to be higher interest rates than standard loans, however if you find a development project that you think can be very profitable, it can certainly be worth it. Other ways to finance development projects with loans are through individual investors or investment companies (source: Chron).
One good strategy for financing a development project could be combining debt and equity. You could use a loan for a portion of the project (say 60% – 80%), and then source individual investors for the remaining. That way you have the lender as a source of debt, and the other investors as a source of equity.
Real estate or property development can be a very profitable and rewarding field of real estate to get into. Although finding investors and different sources of funding can be one major barrier. But there are ways around it. So, whether your find individual investors, bring your family on board, or even take out a loan, there are ways to get the capital to begin your next project.
Charles is the founder of infoSpike.com. He enjoys real estate investing, marketing, and personal finance. Read more about Charles here.