If you need find financing to develop a parcel of land you’ll find all sorts of half-baked articles that will point you in the direction of community bank loans, SBA programs, development grants and worse, home equity loans and seller financing. If you’re a real-estate developer none of these are good option. Learn why private money lenders are the best way to go when it comes to getting Arizona land loansfor development.
The biggest disadvantage with all other types of financing for purchasing land is that these loans are simply not meant for developers. Real estate developers need land financing that lets them borrow based on their projections, sell off the development in short order and doesn’t put their personal property at risk. Let’s see how the typical land financing options simply fall short
• Bank Loans: Banks do give loans for the purchase of raw land, the problem? They’ll only lend based on the value of the land itself, usually no more than 70 percent of a lots purchase price. If you aim to build a 200,000-dollar development on a 50,000 parcel of land-35 K in bank financing won’t get you very far.
• SBA loans and other government programs- Any subsidized loan backed by the government is going to offer you amazing terms, and on paper these are the best deals you can get in the industry. But there’s a catch with all these programs, beyond all the red tape, and that is you can’t resell the property for a profit. The big stipulation with all government loans is that they’re meant for business rather than investment purposes. Which basically means If you’re a real-estate developer, government loan programs are off limits, unless you want to run a clothing boutique for the next 15 years.
• Home Equity loans and Seller financing: Sure, you could borrow against your house to buy land, and sure you could take a seller’s money to buy it from them. But there’s two questions you need to ask, 1. Are investments that could result in homelessness a good idea? 2. If someone is so desperate to get rid of a lot that they’ll actually give me the money to buy it, should I buy it?
The answer to both these questions is usually no.
So, given the drawbacks of the most common land financing options, what can real-estate developers do?
Private money lenders are usually groups of investors who can set their own terms and work with you based on your given project. In other words when it comes to private money and land development deals, anything is possible.
Unlike banks private lenders will let you borrow against the projected value of your development. Instead of getting 35 K for that 200 K development you could get 140. Unlike government programs, there’s no stipulations or conditions for what you do with your development, sell it, refinance it, hell even run a business out of it, private lenders don’t care as long as you pay them back. In addition, private land financing is far less questionable than home equity loans or seller financing.
Basically, if you need money for land development, private money is the way to go. If you’re in the Phoenix area, and you want to buy land for a development, why not give Level 4 Funding a call?
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.