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Development Finance for Landlords 

Private landlords make up a large proportion of the rental sector of the housing market. Professional landlords, that own multiple properties and make their full-time living from doing so, may at times require commercial finance to help them improve and/or expand their portfolio. Development finance specifically can help landlords to renovate or even build rental properties. 

What is Development Finance? 

Development finance is a specific type of commercial finance that is used to allow a business to purchase land or a property, develop it, and sell it on for profit. It is usually a short-term loan, and the requirements include having a suitable renovation plan that is likely to make a profit. 

Key Facts:

  • Short term loan – usually 24 months
  • Renovate or build property
  • Clear development and exit plan required
  • Loan repaid upon selling the development

How A Landlord May Use Development Finance

In the past savvy landlords have snapped up properties in desirable rental areas, these properties may need some basic work or redecoration but can quickly be rented out. However, new legislation including increased second property stamp duty, and rules around tax on rental property income, is making it a difficult industry for professional landlords to turn a profit in.  

As such, some landlords have opted out of the industry, others are seeking new ways to make it a viable business. Commercial finance is a useful tool, when used appropriately, to expand, regenerate, or diversify a business. There are many different types of finance suitable for landlords and you can find out more in this recent article. In 2023, many people have no option but to rent as property prices and average earnings make getting a mortgage difficult. As such there is demand for rental property, and landlords offering desirable accommodation can still make a profit. 

Trendy young people, particularly those living in cities, often want quirky, modern accommodation with onsite facilities. Families often want space and a garden. Older couples are more likely to want easy maintenance and a quiet area. Landlords can take advantage of these requirements and meet the needs of intended renters by building a new build or renovating an existing building to appeal to their target market. Development finance and a clear plan can help to ensure success. 

Build to Let Finance

Build to let is a specific type of finance aimed at landlords wanting to purchase land and build property for the rental market. Usually, development finance is repaid when the build is complete, and the property is sold. However, when the intention is to let out the property the finance requirements are different. Build to let finance provides a way of building and/or renovating property with the intention of letting it out, making it a plausible choice for landlords. 

Key Facts:

  • Residential property
  • Houses, flats, new build, property conversion
  • Planning permission needs to be secured
  • Loans secured on the property
  • Repayment usually based on buy-to-let refinance 

Redeveloping Existing Buildings

Development finance including build to let can be used to redevelop existing buildings into rental units. With the changing landscape of British industry, there are many commercial buildings that are now empty. Many of these buildings have a rich industrial history and are part of the landscape of major UK cities. Some developers are purchasing these buildings and renovating them into spectacular apartments, often aimed at young professionals or even students, in the heart of the city. This theory can be used for other similar projects, where a derelict building is renovated into flats aimed at a specific target market of the rental sector. 

Securing Development Finance for Landlords

As with all commercial finance it is imperative to seek professional advice. Securing the right type of finance, with the best lender to meet your requirements, at a good rate with viable repayment terms is vital for the success of a project. A broker such as MC Commercial Finance will work on your behalf to advise on the most appropriate type of finance, and then source and help you to secure the best possible deal. Brokers often have access to exclusive deals, and their intimate knowledge of the sector ensures that you only apply for finance that you are likely to be accepted for. Booking an appointment with MC Commercial Finance is a great first step toward securing development finance as a landlord and ensuring the future success of your lettings business.