When it comes to property development, success hinges on access to capital. While there are numerous other factors that are key to determining whether a property development project becomes profitable, virtually everything begins and ends with reliable access to capital. Simply put, construction is expensive. What's more, property development is a risky business. Finding financing is always a challenge.
With this in mind, it's imperative for property developers to establish multiple sources of finance. While no amount of accessible capital can make up for poor business management - and will almost undoubtedly make the situation worse - options for available finance can be the critical factor in determining whether or not a viable property development project can overcome the obstacles that could get in the way.
Let's take a closer look at the ways property developers benefit from secondary and/or additional sources of finance:
Managing cost overruns
The reality is it's difficult to accurately predict how much a property development project will ultimately cost. While coming in under budget happens now and then, the more likely scenario involves cost overruns. This is where finance as a service comes into play for property developers. Fast-acting means of securing additional capital in emergency situations are the best weapon to have when going up against unexpected construction costs, especially on a grand scale.
Paying contractors on time
Property developers work with a multitude of contractors. They depend on these skilled laborers and expert craftsmen to do the hard work at the heart of property development. If contractors aren't getting paid for one reason or another, the entire project is at risk of grinding to a halt. Unpaid contractors will simply cease to work until the matter is settled. Challenges related to cash flow present the biggest risk when it comes to ensuring your contractors are getting paid. Secondary sources of financing act as an insurance policy in the event of this happening, helping to ensure construction and remodeling stays on schedule.
Powering through red tape
Government intervention in property development usually means falling behind schedule until the relevant matters are cleared up. This, in turn, means an idle worksite for days or even weeks, which means added expense for the property developers. Auxiliary sources of financing can provide the monetary padding that's necessary to power through the stoppages resulting from the hassles of red tape that interferes with construction, remodeling, or renovation.
Putting on the finishing touches
As mentioned earlier, cost overruns are practically a fact of life for property developers. This can leave little to no capital available at the end of the project. Unfortunately, this means the finishing touches - ranging from refining fixtures to detailing the facade - can end up being sidelined and ultimately abandoned. While it might seem like small potatoes to some, these and other finishing touches are the details that make a piece of property stand out from the competition. With this in mind, secondary sources of financing can bankroll the final stages of development that may very well determine whether or not the property becomes profitable.
The business of property development depends greatly on the ability of property developers to secure funding. While investors play a respectable role in many cases, the bulk of the capital will come in the form of financing. In addition to a primary lender, often a bank, developers should seek secondary sources. Doing so helps to safeguard the project from falling apart due to any number of potential setbacks.