5 Effective Ways to Finance Commercial Real Estate Development Projects
Investing in real estate development projects is a powerful way to build your wealth. The chances of earning above-average returns from investment in this avenue are high. More people have become millionaires through real estate investment than any other investment avenues.
One biggest challenge when it comes to commercial real estate investment is securing the funds. Understanding the different sources of money is important before you undertake any real estate development project.
Here we will explain five effective ways in which you can finance a commercial real estate development product in Australia.
1. Mezzanine Capital
Mezzanine capital is a type of financing that represents a claim to an asset that is senior to ordinary shares. The financing can be structured in the form of preferred equity or debt. The financing option is most commonly used to meet expansion costs. The funding option that is offered by companies such as Stamford Capital Australia is a lower cost alternative to raising capital through selling shares. The option allows owners to finance the real estate development project while giving up little or no ownership.
2. Property Development Syndicates
Property development syndicates provide the opportunity to investors to pool their wealth and invest in mega projects. The syndicates normally consist of a small number of investors who invest in commercial and retail real estate projects. The financing options help in building a diversified real estate portfolio and earn higher returns.
Crowdfunding is yet another option to finance a commercial real estate development project. The financing option involves raising a large amount of money by pooling of small investment amounts. The main difference between raising funds through property development syndicates and crowdfunding is that the former is involves a small group of wealthy investors while the latter involves a large group of small investors.
The benefit of crowdfunding is that it can help you to obtain funds without having to market your idea to conventional investors. Also, you can get feedback from the small investors on how to improve the product. However, this financing option has a risk that if the funding target is not reached, you must return the money without getting anything for your efforts. In addition, it’s not a fast way to raise funds for the projects.
4. Bridge Financing
Bridge financing is a short-term funding option that can help in quickly getting the required funds. The financing option is normally availed for paying development and building costs. The financing option is usually used to solidify the short-term position until a more long-term funding option is secured.
5. Savings and Loan Associations
Saving and Loan Associations are financial companies that accept deposits and make real estate and other loans. Generally, the loans are provided by banks and large commercial loan companies.
Securing funds is the most important part of a commercial real estate development project. A product can end on a disastrous note if the funding is not secured. That’s why it’s important that you understand the different sources of funds, and select the right commercial real estate development financing option!