Financing For Development
Hello all,
I have a question about what methods there are to finance a development and use little of your own cash. I am in the process of my first development, which is very cut and dry. However, I was only able to finance 60% of the purchase price. I've got another 10K in holding costs, soil scientist costs, and surveying.
For future reference, should I have sought other financing? Are there lenders out there that will finance both the raw land costs and the development costs?
Right now the best financing deal that I can get on a development project is 65% of the appraised value of the finished product. The key is financing the end result and not just raw land. If my margins are high enough this relates to 100% financing. I do have well established tract records and relationships with my bankers. [ Edited by pspiers on Date 05/13/2004 ]
generally I would try to get the lans owner to "subordinate" or offer a 50 year lease with option to buy. Lenders will loan on that.
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On 2004-05-13 23:11, pspiers wrote:
Right now the best financing deal that I can get on a development project is 65% of the appraised value of the finished product. The key is financing the end result and not just raw land. If my margins are high enough this relates to 100% financing. I do have well established tract records and relationships with my bankers.
---Do you deal with local "bankers" or a large commercial bank? What are these lenders looking for from you credit wise (ie credit score, assets, income) and also to establish the end value of your product?
I was considering trying to refinance this particular deal. I currently owe 48K on the note, and another 10K in soil work and surveying. The finished lots are going to be marketed for a sum of 200K. Does anyone think that I could approach a bank with these numbers and get a loan to keep me afloat as the lots are marketed?
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On 2004-05-14 00:31, Stockpro99 wrote:
generally I would try to get the lans owner to "subordinate" or offer a 50 year lease with option to buy. Lenders will loan on that.
Stockpro: I understand what you are saying about subordination, however I'm not clear on what you mean about lenders offering a loan when I have a lease option on the property. Are they lending against the finished product, or in other words what you are proposing?
I deal with local banks. I'm not sure what their exact lending requirements are. My credit score is in the 700's. I do know that the Banker's look at my liquidity to make sure that I have the ability to carry the note. Also, if the Banker thinks he can lend on the back end (to the end user) he will tend to be more aggressive trying to get my business.
If the retail value of the finished lots is $200k you should be able to get $130k from the bank. The lender may structure this more like a contruction loan where you make draws on the loan amount based on certain levels of completion.
Note, most appraisers will discount the retail value for time. Usually 10% or more depending on your expected absorbtion rate. In your case you still should be able to borrow up to $117K. This should more then cover your needs.
Good luck,