What's your process for researching development financing?

1 Identify your goals and needs

The first step in researching development financing is to identify your goals and needs for your project. What is the scope, location, market, and timeline of your development? How much equity and debt do you need to raise? What are the expected returns and risks? These questions will help you define your project parameters and financial requirements, which will guide your search for potential lenders and investors.

2 Explore different types of financing

Exploring the different types of financing available for real estate development is the next step. Depending on the project characteristics and stage, you may need one or more of pre-development financing, construction financing, mezzanine financing, or equity financing. Pre-development financing is a short-term loan that covers initial costs such as feasibility studies, permits, design, and land acquisition. It is usually secured by the land or other assets and has a high interest rate. Construction financing is a long-term loan that covers the costs of building and completing the project. It is secured by the project itself and may require personal guarantees or additional collateral. Mezzanine financing is a hybrid form of debt and equity which has a higher interest rate than construction loan but also gives the lender a share of the project's profits or ownership. Equity financing is the capital invested in exchange for ownership or a share of the profits. Although it is expensive, it reduces debt burden and risk exposure. Sources of equity financing include personal savings, family and friends, angel investors, venture capitalists, or real estate investment trusts (REITs).

3 Compare and evaluate your options

The third step is to compare and evaluate your financing options based on your goals and needs. You need to consider several factors, such as the amount and terms of the financing – including the interest rate and fees – as well as the eligibility and requirements for qualification. Additionally, you should take into account the risks and benefits of each financing option, and how these can affect your cash flow, profitability, and ownership of the project.

4 Negotiate and secure the best deal

The final step is to negotiate and secure the best deal for your development financing. You need to prepare a strong and convincing proposal that showcases your project's feasibility, viability, and attractiveness. You also need to demonstrate your credibility, experience, and track record as a developer. You should shop around and compare different offers from different lenders and investors, and leverage your relationships and network to get referrals and recommendations. You should also be flexible and creative, and be ready to adjust your terms and conditions to meet the expectations and demands of your financing partners.

Researching development financing is a crucial and challenging part of real estate development. By following our process, you can increase your chances of finding and securing the funds you need to make your project a success.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?