Acquisition & Development Financing

If you are like most people, when you begin thinking about investing in real estate, you think of purchasing a home or commercial building you will rent out to someone or flip to sell for a higher price down the road. However, this is not the only real estate investing you can do.

The fact is, purchasing land and then developing it is something that a business can use to make money in the real estate industry. In some cases, this is going to require some type of land development loan. This loan is secured by a mortgage to develop empty lots of land into something that can be used by a company for all types of purposes.

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What’s Involved in this Process?

There are several factors to consider when thinking about a land development loan. The initial issue is the cost of the property that’s going to be purchased and then divided into smaller parts that are going to be improved to help make room for all types of businesses. Also, there are the various hard costs, that includes the buildings constructions that are going to house the businesses that opt to rent them out.

In many situations, the properties are built in some type of generic manner, which means they can be customized to meet the needs of all types of businesses. Also, there are a number of soft costs that need to be considered in the loan when it comes to this type of real estate investment. Some of these costs include interest reserves, sales commissions and more. It’s important that you understand all of the costs associated so that you get the right amount of funding.

Understand the Various Percentages

If you plan to work with a hard money lender for this type of project, it is crucial to know what to expect in regard to the percentages you need to put down and what will be charged on the loan. If you are a developer, you will likely have to put down a minimum of 25 percent of the total purchase price. You also need 30 percent for the total cost of the land.

However, a general rule is that the majority of hard money lenders will not exceed the 50 percent mark when it comes to financing the land. Most lenders are willing to fund up to 70 percent of the total cost if you pay the other 30 percent in cash.

When you understand the basics of a development hard money loan, it will help you figure out the type of investing that’s right for you and how you need to prepare to make the investment happen.

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