Before you can even think about getting into property development, you as a property developer must determine your current financial position. Your property development financial position is the sum of cash that you have in your bank & your total borrowing capacity. To determine your borrowing capacity, you must answer the following questions:
- How much equity do I have?
- What is my borrowing capacity, i.e. how much serviceability (your capacity to service the debt) do I have?
- How much money do I have?
For Some, A More Appropriate Question Would Be...
How Much Money Do I Need To Start Property Development?
You can be part of a development with other property investors and in this scenario, you may only require $100,000 to $150,000 or even less in some scenarios, specially if you are part of a property syndicate and depending upon the financial compliance requirements in your country.
However, if you are planning on doing your own developments, your equity or cash contribution will depend upon your borrowing capacity and the size of your development. A developers money requirement for a project depends upon the maximum amount they can borrow for the development, in other words the Loan to Value Ratio offered by your lender for your development.
For example, let's say the total development cost of your project is $1000,000 and the maximum that your lender will borrow you is $700,000. This means that you will need $300,000 of your own money to get into your development project.
For more details, please read How to finance your property development project?