80% of Purchase price or 75% of Appraisal - Applying for a Loan

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Thought I would share a wonderful bank meeting I had today.

I live and invest in South West Florida. Real estate prices are escalating extremely fast and this is a wonderful time to have property.

I had a meeting with my banker today to present him with my loan application for a new development.

For the meeting I had:

1. Executive Summary of the project – basically a snapshot of all major factors

2. A feasibility study done by a third party

3. A study by the Urban Land Institute showing the need for what I was proposing

4. A review of the land complete with surveys, environmental study etc.

5. A review of the product – with prints, elevations etc.

6. Demographics and traffic counts for the area

7. Resumes of key personnel

8. Marketing Plan

9. Financial plan complete with two phases of A nd D and Four contruction phases.

10. Tax returns and financial statements.

11. Copy of contract to purchase

12. Resumes of architect and engineers and subs

I have written in many of my posts about development loans. With good credit you are able to borrow 80% of you A and D and 100% of construction costs.

A and D costs (acquisition and development) include the cost of the land, engineering, architects, amenities building, roads, development fees, infrastructure etc.

Construction costs are the actual vertical costs of the buildings. The bank will loan 100% of this if you have 50% pre-sales.

The good news is that in the A and D phase the bank will consider 80% of the purchase price of the land or 75% of the appraised value. For this particular property I will pay $5400 per living unit for the land when I close. BUT…. I tied it up one and a half years ago at this price, but will not close until March 1, 2004. The current appraisal is $8000 per unit. This means I can either borrow 80% of $5400 ($4320) or 75% of $8000 ($6000)!

I word of caution. You cannot order the appraisal yourself. You need to get the bank to do this for you.

What a great case for tying up property with options and contracts.

I love this county!



  • Lufos19th January, 2004

    Dear Gregg,

    You have done a really masterful prep for submission for financing. Straight out of the book and letter perfect. I assume all of the persons who are resumed looked like the most successful of the area.

    However, may I suggest that you look right and left at your future market and those other projects that may impact at the same time that you complete. I would also prepare for a worst case scenario. A sudden dump in demand caused by some large national event. A downturn in your states revenue and sudden increase in tax structure to compensate. I know it sounds like doom and gloom. But I was always taught to consider the best and worst and look for intrusions on the line of march. If the worst of things is considered and compensated then if nothing happens you are way ahead and if something pops why you are ready. You convert to an old age home. You modify for an army barracks or officers quarters as the need arises.

    I wish you the best and you have indeed done everything possible in your drive to complete, but consider always the sudden jolt. I found it present in about 25% of my activities over the last 50 years.

    The voice from the back of the Chariot. Lucius

  • WheelerDealer24th January, 2004


    How do you "tie" up property for so long without buying it?

    Do sellers go for closings set years ahead like that??

    • GFous25th January, 2004 Reply

      Because of the length of time required for due diligence in raw land, it is not uncommon to close in a year, say. Of course, you will be greeted by the seller with open arms if you are prepared to close sooner.

      Generally land investors understand that land is not very liquid and will work with buyers that need to do the engineering, site plans, etc before they can get their financing.

      In one of my projects, I will have spent over $300,000 on a property without actually closing on the property. I am also pre-selling condos that will be built on that property ( on a reservation basis only) prior to my closing on the property.

      • WheelerDealer25th January, 2004 Reply

        I see,

        I didnt know raw land was so hard to sell. So in your example the seller didnt realize the land would go up so much in that year and a half? Do most land owners that are being approached for their property, try to price it for what they "think" it will be worth at the far away closing??

    • GFous25th January, 2004 Reply

      I would say that neither the seller nor I thought the property would go up in value so much during the due diligence. I was not counting on it.

    • NancyChadwick17th February, 2004 Reply

      Most land owners haven't a clue, WheelerDealer, as to what their property is really worth to a developer. In my experience, most owners pluck a number out of the air--a nice, fat number per acre, multiply that by the number of acres and say "voila!" this is what I want for my property. They don't understand that the value of the land is relative to what can be done with it and the site improvement and "soft" costs involved.

      The motivated owners are willing to be pragmatic. The others are "great fishermen", not sellers.

      • WheelerDealer18th February, 2004 Reply

        So is there a book of factors that developers use to make an offer on raw land based on what they specailize in developing or do they fish for that as well?

  • jfoley17th February, 2004

    In what way do you derive a price per unit? how would you estimate the construction cost per unit, contractors' estimates?

    In the above article, what would your selling price per/unit be? And how would you arrive at that figure?

    What have been your up-front out of pocket expenses? What do you expect to pay next?

    • GFous17th February, 2004 Reply

      Price per unit - total price of land divided by number of units I can build.

      Selling price per unit is irrevelant to the example - but FYI we will build pre-feeble single seniors condos - very low price point - under $100,000

    • GFous18th February, 2004 Reply


      I can tell you what I look at - and right now I have land under contract for

      1. 100 SFH

      2. 56 Condos

      3. 350 Condos

      4. 28 coach homes

      5. 157 condos

      6, 14000sf retail

      7. 12000sf retail or medical

      8 3 acres TBD

      Number 1,2,and 4 I own

      Number 3 is Hard

      Number 5 in due diligence

      Number 6 I own

      Number 7 in due diligence

      Number 8 Still going back and forth on negotiaitons. I want the prop becaudse my condo development will effect its value)

      For the condo developemnts and SFH. I look at :

      Cost per unit

      TIme to pull pemits.

      For commerical - cost per square foot for the footprint that will fit on the lot. - and time to prepare for permits like above.

      In today's market you have to have all your homework done and be ready to move very quickly when property becomes available.

      Believe it or not, some and is going for ABOVE asking price in South West Florida ( I am talking land)

      The big problem the older land owners have is "What will they do with the money if they sell to me?" So what I do is give them some options on NNN investments they can 1031 into. I make it part of my offer.


      ( get me another wheelbarrow LuFos)

      • Sash18th February, 2004 Reply


        What's the difference between a coach home and a single family home?


    • NancyChadwick18th February, 2004 Reply

      The "book of factors", Wheeler, consists of a combination of rules of thumb, experience and gut in estimating site yield and costs to install improvements. Residential developers come up with an offer on raw land based on those estimates and the projected sale value of the end product (new home on the lot).

      They will fine tune and tweak the numbers by using pro formas they've developed from their experience that list all estimated expenses for the proposed project (hard and soft), including bricks & mortar, as well as projected income to arrive at profit margin. The rules of thumb are very good screening tools that help them decide quickly if they should pursue the parcel. The pro formas allow them to project profit margins in different, alternative scenarios.

      • WheelerDealer18th February, 2004 Reply

        This sounds like a sector of real-estate that is very very very complicated and reserved for the experienced investor. The people who end up in this arena must have most likely been brought up or worked for a developer for years. Much like an apprenticeship and almost impossible to break into cold turkey.

    • NancyChadwick18th February, 2004 Reply


      There's a learning curve with this as there is with other aspects of real estate. The rules of thumb are not difficult and individuals develop and tweak them and the pro formas according to the area and markets they are in.

      The "gut" needs to be seasoned by experience, but you have to do this with any other type of real estate endeavor. I've been at this for about 20 years and my training as a RE broker has been of invaluable assistance.

    • GFous25th February, 2004 Reply

      Coah home - attached - could be together with 11 others.

      To give you some ideas of the terms used in Florida:

      In the attached home arena:

      Villa home


      Coach Home

      Garden VillaHome

      Quad home


      They are probably all condos. Villa home normaly has court yard, Coach and Town are the same but coach has garage. Quad just means four togeher.

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