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Commercial
Raw Land Loans
Hard
money loans for raw land are a little different than obtaining
hard money for improved real estate. Raw land can be collateralized
at a rate of about 50% LTV (loan to value). Improved commercial
properties command 65% or even 70% LTV loans in some instances.
When determining "value" in "loan to value",
for either type of property – improved or raw land,
the following rules apply:
Purchase of a property: ‘value’ = the purchase
price of the property
Refinance of a property: ‘value’ = the purchase
price of the property until the property has been owned
for at least one year or significant capital improvements
have been added to the property
Refinance after 1 year: ‘value’ = value per
a written real estate (not business) appraisal of the property
Hard money loans for raw land are commercial loans. Rates
and points range from 10% to more than double that figure,
depending on the lender and the property assets. The most
advantageous raw land is an urban or suburban lot with clear
building or usage prospects. Proceeds from raw land loans
can be used to develop the land or any other business purpose,
including the purchase of additional land.
If you are purchasing raw land and require a hard money
loan to do so, expect to be able to collateralize a subject
property with reasonable prospects at 50% LTV. If you require
more cash to make the purchase, consider collateralizing
additional raw land or improved real estate properties to
make up the shortfall. Hard money lenders will want you
to have at least 20% equity in the project in order to fund
your loan. Collateralizing additional real estate can often
satisfy this requirement.
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