Posted 01 November 2004 - 03:38 PM
Posted 01 November 2004 - 04:15 PM
With a $550,000 purchase price, the lender is going to want to see $225,000 worth of equity on the table. I am not saying that some lenders will not go with a higher loan-to-value, but those are rare and are looking at this more as a collateral loan than one that is going to be repaid. The land loan is what is called an acquisition loan in the industry.
The construction financing is what is called a “development loan”, and the amount that you can borrow is determined by the construction costs as well as the estimate of value “as completed”. If you are thinking of building 5 units, then the land cost alone of each townhouse will be $110,000. We are looking at some pricey townhouses. I looked at a deal for a 12 townhouse unit development where the land cost for each unit was around $210K, but townhouses in that neighborhood are selling for $650K to $800K. You need to know the average selling price in the area before doing anything.
Without substantial equity, this project does not get off the ground.
Posted 01 November 2004 - 06:46 PM
The first thing that you do is get a “land acquisition loan”, then that is replaced by a combination “acquisition and development loan” with a construction loan to fund the vertical improvements.
Just a matter of semantics here since most people associate development with construction.
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