| Posted by: AJ Jan 13 2003, 05:25 PM |
I have a question about what types of loans to look for. My wife and I are looking for property, but once we have that we'll need to move quickly to build on it just to start the income flow.
How does one purchase a peice of property, and then begin the building process and still afford the monthly bills for the property prior to it earning an income?
Are there loans that have a begin payment date several months or quarters after one takes posession of a property so that one has a chance to get the property up to speed and earning income?
Or, do you have to calculate "X" number of months over and above the initial loan just to service the payments until you begin to make a profit? |
| Posted by: loanuniverse Jan 14 2003, 09:57 AM |
It would help a lot if you were to be a bit more specific regarding what it is that you are intending to do. It looks to me as if you are looking for land to build income property and then rent it. At first glance, my first advice would be Do not attempt to do this unless you are a general contractor or are well versed in construction with good contacts.
The financing for such a project can be approached several ways. If you were an established developer and wanted to acquire a land lot to build an apartment building the financing will usually be done in the following steps.
Step-1 Land loan: Used to finance the acquisition of the land and give you time to take care of the architectural plans / permits / zoning etc. It is usually for twelve months and sometimes a bit longer depending on the amount of red tape. It is also interest only and the source of repayment can be the personal cash flow of the borrower or the interest might be built into the loan through something called “allocation for interest reserve”.
Step-2 Construction loan: Used to finance the construction process with the money disbursed as the construction moves along.
Step-3 Income Property loan: A normal real estate term-loan that will be paid with the rental income.
This type of financing is complicated and is really only profitable when the project is large enough due to the need for supervision and time consuming nature. In addition, you need to have established yourself as a developer in order to be considered. A lot of things can go wrong in construction even for the most knowledgeable of borrowers.
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| Posted by: pm2dallas Feb 19 2003, 03:28 PM |
I agree that new construction is difficult, however there is another option and it works relatively well for new developers. A HUD 221(d)4 loan. It is a construction/permanent loan combined, fully amortizing for 40-years, fixed interest during construction and permanent loan. Keep in mind that it is a HUD loan, thus governmental, and will require paperwork and time.
You'd still have to find a way to secure the land, but you can try to negotiate that with the seller by contracting a purchase contract subject to the HUD loan.
Most lenders wont want to deal with loans less than $2 million due to the amount of time required to close. You can also expect to fork out between $15-$50k in up front costs - but most of these are reimbursed through mortgage proceeds at closing.
If you want more information about HUD loans, check out their website at www.hud.gov and meander your way to multifamily.
Good luck!
pm |
| Posted by: loanuniverse Feb 19 2003, 08:30 PM |
To follow on the information provided by pm2dallas go to http://www.hud.gov/offices/hsg/mfh/progdesc/rentcoophsg221d3n4.cfm to find more information about the Mortgage Insurance for Rental and Cooperative Housing: Section 221(d)(3) and Section 221(d)(4). Here are some excerpts from that page:
Purpose:
Section 221(d)(3) and Section 221(d)(4) insures lenders against loss on mortgage defaults. Section 221(d)(3) is used by nonprofit sponsors and Section 221(d)(4) is used by profit-motivated sponsors. Both programs assist private industry in the construction or rehabilitation of rental and cooperative housing for moderate-income and displaced families by making capital more readily available. The program allows for long-term mortgages (up to 40 years) that can be financed with Government National Mortgage Association (GNMA) Mortgage Backed Securities.
Eligible Borrowers:
Eligible mortgagors include public, profit-motivated sponsors, limited distribution, nonprofit cooperatives, builder-seller, investor-sponsor, and general mortgagors.
Eligible Customers:
All families are eligible to occupy dwellings in a structure whose mortgage is insured under this program, subject to normal tenant selection. There are no income limits. Projects may be designed specifically for the elderly or handicapped.
I have personally never seen one of these requests, it surely does not help that my employer is not an approved lender . In fact, it seems that there isn’t one of those lenders within 200 miles of my hometown.
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