Securing funding is a huge problem for newcomers to the property development industry. A property development company requires a large sum of money to purchase good investment properties with a high return potential.
Property development encompasses a wide range of actions and procedures, from land acquisition through the construction and development of facilities, all with the goal of maximizing sales or rental returns. Converting existing houses and office buildings into student communes and apartments are some examples of property development projects. This article examines the various funding alternatives available to property development businesses in African countries.
Financial bootstrapping occurs when an entrepreneur starts a business with little money and grows it with their own funds rather than outside investments. Property development entrepreneurs can then use the profits to expand the company as it expands.
Crowdfunding is the use of small sums of funds from a large number of people to finance a new business initiative. Crowdfunding has gained in popularity in the last two years, owing in part to the COVID-19 epidemic in 2020. Property development entrepreneurs in Africa can seek capital from different platforms. For example, South Africans can approach platforms such as Uprise Africa and Thundafund.
When looking for investment, an entrepreneur interested in starting a property development company can turn to venture capital. Venture capital is available to early-stage businesses that have the potential to grow. However, the venture capital firm may demand certain decision-making authority or a part of the company in exchange for investing.
According to a business analysis report, the South African venture capital business grew during the COVID-19 pandemic, with 74 fund managers investing R1.39 billion in 122 entities over 167 investment rounds in 2020.
An angel investor is a high-net-worth individual who provides start-up capital in exchange for a share in the company. Angel investors are more willing to invest in companies that have been advised by people they trust. As a result, it is critical for a property development entrepreneur to network in the business community in order to receive a referral.
5. Loan from a Bank
Property development entrepreneurs may consider using a bank loan to fund their company, whether it's for buy-to-let or development objectives. Before taking out a loan, the entrepreneur must first determine how much they can borrow and how they will manage all of the project's associated costs.
Before issuing a loan, banks and specialized financing organizations may assess a number of variables. This covers whether or not you have a strong credit history and financial track record, as well as whether or not you must pay a cash deposit.
It is critical that a property development entrepreneur set aside enough funds throughout the planning stages of purchasing a property to develop to cover the property's building and refurbishment expenditures, as well as any unanticipated concerns that may arise.