When you master the art of stretching your equity, you don't just build one project; you build a pipeline. Find out 7 popular ways to stretch your equity, source the funds you need and maximise your cash return.

There are many ways to stretch your equity further and source the funds you need.

Brickflow’s core mission is to bridge the equity efficiency gap, helping developers eliminate inefficient capital deployment and secure the highest possible value from their funding.

Led by the expertise of Brickflow's CEO, Ian Humphreys, this guide reveals the 7 most popular ways that successful developers use to ensure they can maximise the return on their own cash.

The 7 ways to stretch your equity

1. Cracking your capital stack
2. Shopping the market (and why cheap debt is mostly a false economy)
3. Considering a second charge
4. Leveraging your network (smartly)
5. Leveraging the planning process
6. Requesting a deferred land payment
7. Overage

If you don’t have a hefty deposit to help secure development finance, it doesn’t mean it’s game over for your ambitious development plans. Read on and find out how to maximise your capital.

1. Cracking your Capital Stack

The Capital Stack is the structure of your development finance, or the different layers that fund a scheme. Think of it as a strategic hierarchy, and a non-negotiable rule of development finance is that debt is always cheaper than equity, both in terms of financial interest and the opportunity cost of locked capital.

1. Senior Debt: The foundation. Rates typically range from 4%–8%. High-street lenders usually provide 60%–65% of the Loan to Gross Development Value (LTGDV).
2. Stretched Senior: A hybrid tier with rates between 8%–10%. This reaches up to 70% LTGDV and 90% Loan to Cost (LTC).
3. Mezzanine Debt: High-risk, high-reward buffer. Rates vary between 14%–18%, covering the gap up to 75% LTGDV or 90% LTC.
4. Equity: The most expensive layer. Often involves a coupon/interest rate plus a significant profit share (e.g., 10% interest + 40% profit share).

In the funding sequence, mezzanine debt is injected before senior debt. Because it sits behind the senior lender, it carries the most risk and acts as a buffer, which is why it commands a premium rate.

Strategically determining the best Capital Stack for your project allows you to minimise your equity investment and maximise your Return on Capital Employed (ROCE). Read our more detailed guide to the Capital Stack here.

2. Shopping the market (and why cheap debt is mostly a false economy)

A common amateur mistake is chasing a low headline interest rate while ignoring the prohibitive equity requirement. Chasing 'cheap' 5% money often leads to lower gearing, forcing the developer to bring in expensive equity partners.

Another default setting for many developers is to stick to a tried and tested senior lender. But deposits vary from 10% to 35% of total costs (including land, build, finance and professional fees), so on a scheme with costs of £5m, the required deposit could be anything from £500K to £1.75m. A huge and potentially deal-breaking variance.

If you only have a relationship with one lender who requires a deposit at the higher end of the spectrum, it could mean investing an additional £1.25m of equity, blocking investment for other schemes, and preventing you from progressing to bigger sites, sooner.

Here’s an example of how shopping around for property development finance can stretch your equity further:

Tyler (Old-Fashioned High Street) and Rosey (Brickflow Efficiency) both have £1m in equity for a project with £6m in land/build costs and a £9m GDV.

By accepting a higher interest rate to achieve higher gearing, Rosey maintained 100% control of her profits. More importantly, she avoided capital dormancy, utilising her remaining £320k to fund a second scheme, resulting in over a 100% increase in total profit compared to Tyler.

The only difference between Tyler and Rosey is that Rosey shopped around for her funding and didn't get caught in the trap of being a rate chaser.

Be smart when bringing on investors, and leverage your network

If you need to partner with investors to make a scheme happen, don’t be too generous with your profit share. You’re the driving force behind the development and without you it wouldn’t be on the table, so remember this when assessing your funding options.

The best property developers have the ability to bring in the right partners to make a scheme work. This applies to obtaining finance for property development, and making debt work for you. It’s unlikely that using a single source of funding is the most cost-effective route, so look to your friends, family and wider professional network to help raise equity where you can.

3. Considering a second charge

Second charge loans mean you can use equity in background portfolio properties as security for another loan, even if you have an existing mortgage, so they’re a great way to conserve cash. They offer flexible funding, and can normally be secured fairly quickly as second charge lenders are setup to work quickly, making them a strong alternative to re-mortgaging or draining your cash.

If you have some BTL properties in the background that are lowly geared, this could be an option. Lenders can even take a second charge over multiple properties to give you an overdraft type facility to use as and when you need to raise a deposit. Typically known as a Second Charge Revolving Credit, by only paying for what you use, you preserve your existing low mortgage rates while leveraging the property's value uplift.

4. Scaling via phasing

Phasing is a powerful tool for rapidly scaling a development business. By breaking a large scheme into smaller stages, you can recycle the same pot of equity across the project. As Phase 1 reaches completion and is refinanced or sold, that capital is immediately redeployed into Phase 2. This 'capital recycling' prevents your equity from being trapped in a single large-scale build, allowing you to run multiple concurrent phases with a fraction of the total project capital.

This is especially useful on larger sites where a single-phase approach would demand a deposit far beyond what most developers want to commit to one scheme. Structured well, phasing means your equity can effectively work two or three times over across a single site, rather than being deployed once.

5. Leveraging the planning process (Sweat Equity)

If you buy or option a site without planning permission, you will add value during the planning process, commonly known as Sweat Equity. This places value on the time and effort put into a project. Securing planning permission isn’t easy, so good lenders will take this into account when assessing a funding application for a property development loan, and lending opportunity.

Every lender will place a different amount of value on Sweat Equity: some use Loan to Cost (LTC), lending a percentage of your purchase and planning costs, while more others use Loan to Value (LTV), lending against the post-planning valuation. So make sure you search the market to find one that appreciates the value you add as an experienced property developer.

An added benefit of buying during the pre-planning phase comes if you need an investor. You can repay your equity when you raise the development finance for the build stage, meaning you’ll only need to pay your investor a percentage of the profit on the uplift during the planning process, not on the total profits at the end.

Here's an example:

• The scenario: Developer X buys a site for £1m, with £200k in purchase costs and planning costs, so total investment is £1.2m.
• He takes a net bridging loan at 70% LTV, requiring a He splits the £500k deposit equally with an investor and they agree a 70/30 profit share.
• The exit: 9 months later he secures planning permission, and the site is worth £2m, so there is £800k of ‘profit’.
• He owes the investor £250k (his original investment) plus £240k profit share (30%), totalling £490k.
• By raising development finance at the build stage, he can repay the investor based on the planning uplift only.
• The maths: Instead of paying the investor 30% of the final scheme profit (which could be £600k), he only repays their original investment plus their 30% share of the planning uplift (£490k).
• The result: Developer X retains 100% of the build-stage profit, effectively buying out the investor early using the site's own value increase.

6. Requesting a deferred land payment

When a developer is looking to buy a piece of land, the landowner can agree to receive part of the payment once the properties have been built and sold (usually at a higher price as the trade-off). This is known as a deferred land payment, and it’s worth asking the question if you’re short on equity. The lender providing the development finance has first charge over the land and lends all of the build costs, plus a portion of the land acquisition costs.

As the buyer, you would be giving the lender security over a site that is worth more than you paid for it (so far). This de-risks the lender and allows you access to greater value projects with smaller deposits, so it’s a full circle win. The landowner will normally request a second charge behind the lender and would have to agree to be repaid only after the lender. Not every vendor will agree to this, so you need a good relationship in place. You could also offer a small profit share to further sweeten the deal (if needed).

• The Mechanics: Rather than paying £1m today, you negotiate to pay £800k now and £300k after the units are sold. The landowner gets a higher price (£1.1m total) for their patience.
• The Benefit: Lenders still see £1m of security, but the deferred £200k acts as a "gifted deposit." If a lender requires 60% of land value and 100% of costs, this tactic can reduce your required cash deposit from £400k down to £200k.
• Pro-Tip: Always ask a landowner what they actually need today. They often have a specific project in mind and don't require the full asking price immediately.

7. Overage

This is similar to a deferred land payment, but slightly different. It also requires an understanding of how to calculate residual land value. An overage agreement is where the buyer agrees to buy of a piece of land for a certain price now and agrees to pay more later, if certain conditions are met (such as they are able to achieve higher sales values than forecasted).

To help explain this, take the following example;

• A seller wants £2m for his land. You as the buyer think the land is only worth £1.5m
• You’ve arrived at that figure, because you believe the GDV is £4.5m
• Residual land value (£1.5m) = GDV (£4.5m) - 20% developer profit(£900k) - build costs + professional fees (£1.7m) - finance costs, stamp duty and legal fees (£300k) 
• The seller is at £2m, as he believes you’ll be able to sell for closer to £ 5.25m – if you pay £2m and don’t achieve more than £ 4.5m, then it’s all coming out of your profit
• As the buyer, you can say, I believe I will sell at £ 4.5m, however I agree to pay you XX% of any proceeds over and above £ 4.5m
• Lawyers draw up contracts to that effect and the seller has a potential future windfall

This is a common negotiation tool, and is particularly useful in an uncertain market place. The seller is basing their land price on an aspirational GDV. You’re the person taking the risk.

If prices are forecast to remain flat or fall, then you would have overpaid for the site. Similarly, if it costs more to build, or takes longer than original estimates, the price you paid for the land will be wrong.

The cost of locked up capital

Recent Brickflow research, The UK's Most Expensive Mistake, reveals that property developer's can lose out on over £1m in net borrowing, on an average-size development, by not searching the market.

Yet we see developers repeatedly making that mistake. Just recently, we spoke to 'Gary', who deployed £2m of his own cash into a scheme to secure a low interest rate. While his debt was 'cheap,' he lacked the liquidity to capitalise on several prime opportunities that arose during the 18-month build.

Stretch your equity with Brickflow

Run your project numbers through Brickflow's development finance calculator and instantly see if it stacks against actual borrowing options. You can also see exactly how much deposit you'll need to put in, as well as compare the huge gaps in deposit requirements between lenders on the same deal. 

Our calculator is free to use, with no obligation and no credit check.