How to Raise Finance For Your Upcoming Real Estate Development Project5 min read
Real estate development heavily relies on the availability of the finances. Gone are the days when individual property developers had enough resources to develop a piece of land on their own. Today, the market dynamics have changed. There are very few real estate developers who have all the finances in hand to get a project going.
Nowadays, a competent and robust real estate developer masters the art of fundraising for the projects. A positive impact of this has made smaller developers shake the monopoly of tycoons over the real estate development sector. However, fundraising requires you to go an extra mile and deploy unique tactics.
Here are some tips to help you raise financing for your upcoming real estate projects.
1. Crowd Funding:
This is a new one and the internet population is going crazy about this! Crowdfunding basically opens up investment and fund raising from virtually everyone! There are dedicated real estate crowdfunding portals online that let you, the real estate developer, connect with an investor.
However, the investors will be primarily interested in the rate of return your sales pitch offers them. Crowd funding projects, with a good sales pitch, draws in more attention. If you are going to compile a sales pitch with facts and verifiable statistics, you are surely in for the win in the least possible time.
So how do you start with getting your project financed via crowdfunding? To begin with, we suggest checking out RealtyMogul and FundRise. These two portals have earned quite a repute for themselves because of the active investor ratio. However, please do carry out in-depth searches for a crowdfunding platform that is better compatible with your project.
For instance, if you are going for crowdfunding your real estate project in Pakistan then you can take lead from what Blue World City did to raise funds for their project. They went into many phases of soft launching their inventory and accumulated the majority of the running capital funds to fuel their cash flow.
2. JV Partnerships
Joint venture partnerships have always been the classical go-to fundraising. This is the point where you pitch your upcoming real estate development to potential high-end investors. The pitch is made to harness a partnership between you and the investor.
Unlike crowdfunding, JV partnerships are commissioned between two or more parties with a percentage of capital and liability stake. Your partners have as much stake and responsibility as you in the project.
Ideally, your JV partners are required to be investing as much as you do in the project. But, you can also decide on a different percentage of investment and stake in case one of the parties can’t match the investment done by the other. JV partnerships are based on mutual trust. However, it is necessary to consult your local law about forging such partnerships.
3. Institutional Financing
Regardless of your project’s size and dynamics, institutional financing won’t become a part of history soon. Banks are the main financial institutions that lend you the funds at a certain interest rate. However, you can still look info credit unions, real estate angel investors, and non-conforming commercial mortgage providers in order to diversify your financial sources. The good thing about non-conforming lenders your ability to negotiate the interest rate with them.
4. Financing from Property Sellers
This is an intuitive source of funding for your real estate development project. With this method, you can actually let the seller of the land (on which your project is to be constructed) become a partner in your project. Now this gig really works well with those land sellers who don’t have any immediate need that they want to resolve with the money from the sale.
If your property seller is a serial real estate investor, then you can convince him or her to become a partner in your project. In order to convince these investors, you’ll have to show them the money in future.
For instance, they don’t really need to become a 50% stakeholder in your company. You can sell them a whole floor and pitch them the rental income they’ll be able to gain after the project completion. The terms and conditions for these financiers are similar to that of JV partnerships. A good real estate company or anywhere in Pakistan can help you find JV partners.
5. End-consumer funding:
Your end customers, the people who are going to occupy your building, can become a funding source for your project. In order to hail this type of funding, you’ll need your pre-launch marketing plan to create an appeal for your target audience.
To gather funding from the end consumer, you’ll have to deliver them the complete project plan, estimated possession time as well as the facilities your project is going to offer. For instance, if you intend to build a residential society, then it is imperative to deliver the lot sizes, utility supply guarantees and the neighborhood details to your end customer.
If done right, your end consumers funding might rise up to 75% of the total project cost.
6. Real Estate Syndicates:
These syndicates are real estate investor consortiums that combine their funds to deliver funding to development projects. The funding from these syndicates is needed when you need a large part of your project to be financed by a third party. For instance, you can examine the case study of Capital Smart City to see how they syndicated funds from the majority of their previous investors to make this project a reality.
These syndicates finance your projects based on the returns they are going to gather. Since the return has to be distributed uniformly among the syndicates, they usually expect a higher rate of returns than your normal lenders and investors. The syndicates usually comprise investors who have years of real estate experience under their belt.
Apart from being an active fundraising source, these syndicates can also advise you on various legal, development and other related issues. And since they have a stake in your endeavors, they’ll be keeping a check on the project’s progress.