Build To Rent Finance

If you plan on building a property with the final goal being to rent it out, there are a number of useful methods worth exploring to finance the build.

This guide covers everything you need to know about build-to-rent loans. You’ll learn about what’s involved with this type of mortgage, how to invest in build-to-rent properties, and who to approach when you’re looking for the best finance arrangement.

Keep reading for all the details or click on a link below to jump straight to a specific section…

What is build-to-rent finance?

Rather than a distinct type of loan, this term refers to financing that’s suitable for developers and investors looking to fund the building of a buy-to-let property designed to be used for long-term rental purposes. It’s also sometimes referred to as ‘build-to-let’ finance.

How does it work?

Build-to-rent mortgages work in a similar way to a self-build buy to let mortgage. The biggest difference is these long-term rental properties are usually owned by professional companies and investors, rather than individuals.

The exact way this kind of finance works will depend on your project and situation. Depending on the size and structure of the property you’re planning to build and rent out, you’d need to approach different lenders.

Some builds will fall under the remit of a standard buy-to-let mortgage whereas larger projects may require speaking to a commercial buy-to-let lender.

You may find you have to use a mixture of finance options to purchase a site and carry out the construction work. It’s also likely you’ll need to look into using a buy-to-let mortgage and explore refinancing options for your exit strategy.

How to get finance for build to rent

Obtaining finance for large building projects can be tricky, but it’s not impossible. Your personal circumstances and track record (financially and professionally) will make a big difference to your chances of approval. Here’s what you can do to improve your odds of securing development finance for a build-to-let construction:

• Exit strategy: this will be very important for any potential lenders. You’ll need to have a strong plan for paying back the loan. A common tactic used here is refinancing funds onto a standard buy-to-let mortgage.
• Development plans: your plans and projections for the construction can make a great first impression. Having a business plan outlining your rental projections and occupancy forecasts will show lenders your build to rent project is worth backing.
• Your experience: lenders will ideally be looking for developers who have a proven track record or past experience. This is because they are investing finance into your project, so they want to know their funds are in good hands.
• Good credit: it’s worth downloading all your credit reports ahead of time to see if there are any mistakes or areas that need improving. Some lenders will still consider bad credit applicants providing any potential issues won’t affect your exit strategy.
• Deposit and security: your ability to put down a strong deposit or high-value assets as security will work in your favour. Not only can this increase your chances of approval but it can also lead to better rates and terms. Some development finance lenders will fund 100% of the construction costs, but require you to put down at least a 25% deposit based on the site value.

How a development finance broker can help

The process of securing suitable finance for a build-to-rent project will be reviewed on a case-by-case basis. So, in order to get the best result possible, it’s worth following the advice of a skilled advisor.

Using a mortgage broker with direct knowledge and experience obtaining development finance means they can help guide you throughout the whole process. Build to rent projects are all completely unique. Having an expert in your corner means they’re able to introduce you to suitable lenders that they already have an existing relationship with.

If you want to discuss your building and finance plans with a specialist broker, just make an enquiry. We’ll arrange a free, no obligation chat between yourself and a build-to-let expert today.

The advantages and disadvantages of build to rent finance

This particular type of development finance comes with some distinct advantages and disadvantages. Here’s a breakdown of some important points to keep in mind when pursuing build-to-rent finance:

Advantages

• Rental properties and buy-to-let real estate have proved to be a solid and reliable investment.
• High demand for rentals and a limited supply creates an excellent opportunity for a decent return on your initial investment.
• Opting for long-term rentals can lead to a steady source of income.
• In some cases it’s possible to finance a build-to-let project with relatively little up front capital.
• There are sometimes government schemes available such as the housing guarantee scheme that can help support your project plans.

Disadvantages

• A smaller market for buyers if you want to sell the development at some stage.
• You might need to have access to significant funds or assets to kickstart the project.
• Short-term financing solutions can involve higher interest rates.
• Investing in build-to-rent property is a long-term endeavour and it may take time before your rental income matches your initial investment.

Alternative financing options

The best way to structure your mortgage and finance for a build-to-rent project can vary. Depending on your situation and overall goals for this buy-to-let property, here are some alternative financing paths worth discussing with your broker:

• Bridging loans: if you need to get hold of finance fast, a bridging loan could be useful. It’s a short-term, interest-only option that you’d also need an exit strategy for. But, it could be worth exploring if you’ve got funds secured for the development itself but need finance for purchasing the site or land.
• Releasing equity: it can be possible to remortgage or refinance properties in your portfolio that you already own. This could then provide you with the finance needed to fund a build to rent property.
• Unsecured loans: a business loan could be used to top up your development finance. However, these loans only tend to go as high as £25,000. So, anything over that would need another solution.

How do you invest in build-to-rent (BTR)?

If developing a whole project isn’t something you’re interested in, you can still explore other ways of investing in a rental property without carrying out the build yourself. One option you may want to look into is investing in a REIT (real estate investment trust) that focuses on large residential rental or buy-to-let properties.

Speak with a build to rent finance expert

Embarking on a large project like this involves plenty of moving pieces and different parties. The finance you need to fund the build will have to be tailored to your specific build to let plans, requiring a bespoke lending arrangement.

We offer a free broker-matching service. This means we’ll quickly assess your initial plan and then pair you up with a specialist broker. They’ll be able to introduce you to the right lenders who can create the best borrowing terms and loan structure for your rental property goals.

Just call 0808 189 0463 or make an enquiry. We’ll set up a free, no obligation chat between yourself and a build to rent finance expert.