Board Topic: loan for land only for half the value
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loan for land only for half the value

Posted by: K. Elderkin Feb 4 2004, 09:16 PM
my Parents own 7 acres of land outside town. They city is growing and they can now build houses on the property. They have a opportunity to purchase the lot across the street that is much bigger, but when they went to the bank it said that they will only lend them $300k, the purchase price is $500k and they only have $100,000

Why doesn't the bank lend them the money. The bank also wants a ballon in two years but the plan is to sell both properties to a developer but that might take longer.

Help please.

Kenny.

Posted by: loanuniverse Feb 4 2004, 10:30 PM
You are looking at this from the point of view of a collateral lender. Banks are not collateral lenders. The property that you pledge is considered a secondary source of repayment. Our primary source should be the cash flow from operations whether this is the operational cash flow from the company using the property in an "owner occupied real estate deal" or the net operating income from rentals in an "income producing property deal".

A good conservative lender will look at the loan in question and determine the inherent risk of the underlying property and set some sort of internal guidelines. For reasons of marketability and the fact that the properties do not create any income, land is very risky and it is usually capped at 50% loan-to-value. I have worked in three banks and the loan-to-value for land has always been 50%. I think that the most lenient of the three was willing to give up to 75% of the value if the land was improved and ready to build on.

There is a possibility that you could get that 80% loan to value from a Bank. Loans can be done with exceptions to policy, but there would need to be some compelling reason for the lender to do it. The fact that the property is in a "hot market" might not be enough for most people. If on the other hand, you had a firm commitment from an interested buyer that would go a long way to assure the lender that the sale of the property is an adequate secondary source of repayment.

Another problem that I see is that land loans are not usually for such a long period of time as the one that you are looking for. They are usually limited to a year and in rare occasions up to three years. The five-year loan that you are looking for will be a stretch to do for any bank.

Another choice would be one of those "hard money lenders", but my experience with them is limited. I would imagine that one of those lenders advertising "land loans", and who is not a bank would be able to offer more flexible terms. On the other hand, if you decide to go this route, it is reasonable to expect to pay more also.

Hope this helps

Posted by: commfunder Feb 5 2004, 03:45 PM
My name is Karl Brenneman and I'm a lender's agent in New York City. My lender will lend up to 80% LTV on raw land depending on location. If you would like my assistance please email me at kbrenneman@1stfidelityfunding and please include a more detailed summary.


Thanks
email

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