Acquisition & Development Financing
When most people think of real estate investing, they think of buying homes and commercial buildings they will either rent out or flip and resell for a higher price. However, this isn’t the only type of real estate investing you can choose. In fact, acquiring land and developing it into something businesses can use can be a lucrative way to make money in the field of real estate. This often requires a land development loan, which is typically secured by a mortgage to develop an empty lot of land into something that can be used by companies for a variety of purposes.
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What Is Involved
If you’ll be working with a hard money lender in Arizona for this type of project, it’s important to understand what you can expect in terms of lending percentages. As a developer, you are likely to be required to put down at least 25 percent of the purchase price of the entire project cost. You will need at least 30 percent of the cost of the land itself. As a general rule of thumb, however, most hard money lenders won’t exceed more than 50 percent of the loan-to-value of refinancing the land. Many reasonable individuals are willing to fund up to 70 percent of this cost as long as the other 30 percent is being paid for in cash. If an investor goes into this project paying for their portion with any other type of loan or with credit toward work that has already been performed, the amount a hard money lender is likely to contribute will fall dramatically. In most cases, it can fall as far 55 percent of the loan-to-value ratio.
Understanding the basics of acquisition, development financing and hard money loans will help you determine if this kind of real estate investing is right for you and prepare you for what you need to make this type of investment happen.
