My family owns about 5 acres in Florida. We have had offers to buy it way above market value. I want to build townhomes on it. I don't know where to start. I would like a development and construction loan, but I don't know if the land will be enough for collateral, without liquid assets. Has a loan been granted before with only land collateral?

That is usually how residential construction loans are structured. However, you will not get this loan due to the lack of experience in developing.

My advice=Sell the land.

Land values have gone down or stayed flat on many markets on the last six months.

What you are seeking is an asset based, private lender. We do not consider credit, income or experience in our lending decisions. A loan like this will be based on the completed value of the project which will allow you to draw on the funds as needed for the work to be completed.

I would like to speak with you and offer you some options, if your loan does not meet our minimum loan requirement, I could provide you with a number for another lender who could handle smaller loan amounts.

-Call or email for more information...



I am surprised at the advice you gave her, that is horrible advice and you are usually pretty helpful. There are many options available for getting the loan she needs, with or without experience. As someone who specializes in commercial lending, I would think you would be more aware of that.

Bigworm:

Remember that I am not in production and that I am solely a credit guy. The reports that I am getting from third party data vendors, my independent appraisers, and my large sized developers indicate that many areas in Florida are stagnant. On top of that, when I read comments like:


“We have had offers to buy it way above market value…….I don't know where to start…….Has a loan been granted before with only land collateral?”


I am concerned that we are dealing with a complete novice, who would in most cases be better off selling rather than developing. Unless they are considering switching careers. In addition, I know that lenders that lend mostly on collateral serve a purpose. However, giving a loan to someone that has not done development before is risky for both the lender and the borrower.

I could very well be eating my words and the boom might continue for a few more years, but the risk is too much now for new players to come in.

This is a big project and for someone without any development experience or liquidity, this is very risky. Most construction lenders use the following formula for their loan to cost (note, construction loans are always based on loan to cost, not loan to value) calculations:

1. 50% of the purchase price of the land. Some lenders will consider market value of the land.
2. 75% to 80% of the construction cost not finished value of the project.

The balance has to be your equity.

Lenders are always looking for developers with experience. Since you don't have any experience, you should consider either selling the property outright or partnerning with an experienced and reputable developer. Your equity in the deal would be the land and they would come in with the other soft and hard costs and you share the profits. If you want to pursue the partnership route, talk to a realtor who specializes in land deals and they should be able to market it to the right group of people and find you a suitable partner.

I don't know anything about hard money lenders but let's say they are willing to finance this project, your lack of development experience still makes it very risky for you.

I understand where you are coming from, and if I had all the details of her situation I would probably agree with you. It was the part about her not being able to get a loan that gave me pause. She most definitely could get a loan, she most definitely would not to have experience to get a loan, and she could most definitely get a loan using only land as collateral.

Obviously the easiest thing for her to do is to sell the land ands make a quick buck, but she requested advice on how she could get money to develop the land. She could hire a developer, contractor, or any other experienced laborer to do the work for her and in the long run benefit from greater profits. At least she would have the option to do that.

Personally, I would probably sell the land, I, myself, would rather have the immediate gratification.