70% GDV Property Development Finance

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Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in development finance

Navigating the world of property development finance can seem like a daunting task, especially when you’re faced with terms like “70% GDV”. But don’t fret, we’re here to break it down for you, making it simple.

In this guide we cover everything you need to know about 70% GDV property development financing, including what it is, how it works and the pros and cons.

What is 70% GDV Development Finance?

70% GDV (Gross Development Value) Development Finance is a type of loan specifically designed for property developers. The term “70% GDV” refers to the loan amount being up to 70% of the projected value of the development once completed.

In simpler terms, let’s say you’re a developer planning to build a residential complex. You’ve done your homework and estimated that once completed and fully occupied, the complex will be worth £1 million. A 70% GDV loan would mean you could potentially secure up to £700,000 in funding for your project.

This type of property finance is a lifeline for developers, allowing them to fund their developments without having to dig too deep into their own pockets. It’s a bit like a mortgage, but for developers.

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What are the advantages of 70% GDV Development Finance?

When it comes to property development, 70% GDV Development Finance can be a game-changer. Here’s why:

Higher Potential Returns

By leveraging a 70% GDV loan, developers can undertake larger projects than they could if they were relying solely on their own funds. This can lead to higher potential returns once the development is completed and sold or rented out.

Asset Leverage

If you’re a developer with existing assets, such as land or properties, you can use these as collateral to secure your loan. This means you can get the funding you need without having to part with your hard-earned cash.

Opportunity for Larger Projects

With access to more funding, developers can take on larger, more ambitious projects. This can help to boost your company’s reputation and portfolio, opening doors to even more opportunities in the future.

70% GDV Development Finance

What are the disadvantages of 70% GDV Development Finance?

While 70% GDV Development Finance can offer numerous benefits, it’s also important to be aware of the potential drawbacks:

Potential for Higher Costs

Development loans often come with higher interest rates than traditional mortgages. This is because they are considered riskier by the bank or development lender. The loan amount is based on a projected value, and there’s always a chance that the final GDV might fall short.

Reliance on Projected GDV

The loan amount is based on the projected GDV of the completed development. If the project doesn’t go as planned, or if the property market takes a downturn, the actual GDV might be less than projected. This could leave you with a funding gap.

Risk of Complications

Property development can be unpredictable. Delays, cost overruns, and planning issues are just a few of the potential complications that could impact your project and, consequently, your ability to repay the loan.

Remember, while 70% GDV Development Finance can be a powerful tool for property developers, it’s crucial to do your homework and understand the potential risks. A trusted mortgage broker can provide invaluable advice, helping you to navigate the complexities of development finance and make informed decisions.

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Is a 70% GDV Development Finance a good idea?

The million-dollar question, or should we say the 70% GDV question, is whether this type of property development finance is a good idea. Well, like most things in life, it depends.

If you’re a developer with a solid track record, a strong project plan, and a robust understanding of the property market, then a 70% GDV loan could be a fantastic tool to help you scale up your operations. It’s particularly suitable for larger residential developments where the potential returns could be significant.

On the other hand, if you’re new to the property development game or if your project is on the smaller side, you might want to consider other options. The higher interest rates and potential risks associated with 70% GDV loans might not be the best fit for your situation.

What are the key considerations when 70% GDV Development Finance?

Before you jump headfirst into the world of 70% GDV Development Finance, there are a few key considerations to keep in mind:

  1. Project Feasibility: Do your homework and ensure that your development project is feasible. This includes everything from securing planning permission to understanding the local property market.
  2. Financial Planning: Make sure you have a solid financial plan in place. This should include a detailed budget, a clear understanding of the potential returns, and a plan for repaying the loan.
  3. Risk Management: Property development can be risky business. It’s crucial to have a risk management plan in place, covering everything from construction delays to changes in the property market.
  4. Market Conditions: The property market can be unpredictable. Keep a close eye on market conditions and be prepared to adapt your plans if necessary.

Remember, a good mortgage broker can be worth their weight in gold when navigating the complexities of development finance.

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What are the alternatives to 70% GDV Development Finance?

While 70% GDV Development Finance can be a powerful tool, it’s not the only option out there. Here are a few alternatives:

  1. Traditional Bank Loans: These can be a good option for smaller projects or for developers with a strong credit score and a solid track record.
  2. Private Investor Funding: If you have access to private investors, this can be a flexible and potentially less costly alternative to development finance.
  3. Bridging Finance: This is a short-term loan option that can be useful for developers who need quick access to funds, for example, to secure a land purchase.
  4. Residential Development Finance: This is a type of loan specifically designed for residential property developments. It’s similar to 70% GDV finance but can offer different terms and conditions.

Remember, the best type of finance for your project will depend on a range of factors, including the size and nature of your development, your financial situation, and the current market conditions. It’s always a good idea to seek advice from a trusted mortgage broker or financial advisor before making a decision.

Keep reading – Finish and exit development finance or Permitted development finance.

Frequently Asked Questions

We know you’ve got questions, and we’re here to provide the answers. Let’s dive into some of the most frequently asked questions about 70% GDV Development Finance.

70% GDV Development Finance is particularly well-suited to larger residential developments. This could include housing estates, apartment complexes, or mixed-use developments. The key is that the project has a high potential GDV, allowing the developer to leverage a significant loan amount. Remember, the higher the GDV, the more funding you can potentially access.

The GDV, or Gross Development Value, is calculated based on the estimated value of the development once it’s completed and fully occupied. This typically involves looking at comparable properties in the local area, as well as considering factors like the size, quality, and features of the development. It’s a bit like gazing into a crystal ball, but with a lot more data and a bit less mysticism.

If the actual GDV ends up being lower than the projected GDV, it could potentially leave you with a funding gap. This is because the loan amount is based on the projected GDV. If the final value falls short, you’ll still need to repay the full loan amount, which could put a strain on your finances. It’s a bit like ordering a large pizza and then realizing you’re only hungry enough for a small one. You’ve still got to pay for the large pizza.

While it’s possible for inexperienced developers to access 70% GDV Development Finance, it can be more challenging. Lenders typically prefer to work with developers who have a proven track record and a strong understanding of the property market. However, don’t let this put you off. With a solid project plan, a robust financial strategy, and a bit of determination, it’s still possible to secure the funding you need.

70% GDV Development Finance is just one of many tools in the property developer’s toolkit. Compared to other types of finance, it can offer higher potential loan amounts, making it a good fit for larger projects. However, it can also come with higher interest rates and potentially more risk. Other options, like traditional bank loans or residential development finance, might offer different terms and conditions, making them a better fit for some projects. It’s all about finding the right tool for the job.

Remember, navigating the world of property development finance can be complex, but you don’t have to do it alone. A trusted mortgage broker can provide invaluable advice, helping you to find the best financing option for your project.

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