Land Hard Money Loans
Undeveloped property offers substantial and lucrative opportunities for real estate investors. Investors can develop the land and sell it for a profit, or they can develop the land, retain ownership, and make a profit by either renting out the property or by using it to conduct business. Essentially, undeveloped land is a blank slate that real estate investors can turn into a valuable source of income.
Purchasing land can be expensive, however; even if the land is undeveloped. Usually, land is sold based on a price per-acre. The price per-acre is determined by the location of the land and the features it offers; for example, undeveloped, waterfront land that is located in an affluent community will cost more per-acre than a piece of land that is situated in less desirable location and is flanked by other businesses. Nevertheless, land can be pricey; the purchase price of the land, as well as the closing costs, can be exorbitant.
Many real estate investors do not have access to the capital that is required to purchase land. While traditional loans can be a viable way to secure funding, investors who have poor credit may not qualify for these types of loans. Investors who may be eligible for a traditional loan may not be keen on the long terms and prepayment penalties that often apply. In these cases, real estate investors can consider hard money land loans.
What are Hard Money Loans for Land?
Hard money land loans are similar to standard hard money loans.
Hard money loans are short-term loans that are secured with real estate. The real estate acts as tangible collateral. Hard money lenders consider the value of the property when determining whether or not they will fund a loan. Typically, lenders that fund hard money loans are private investors, venture capitalists, and other similar entities. Lenders determine the amount of money they will lend a borrower by calculating the loan-to-value ratio. Most hard money lenders will allow real estate investors to borrow between 65 and 75 percent of the total current value of the property; however, some lenders may allow investors to borrow less or they may consider the estimated value of the property after improvements have been made to the property. For example, if a lender offers 65 percent of the total current value of the property and the current value is $400,000, the loan amount would be $260,000.
If the borrower defaults on the loan, the lender can call the loan due and foreclose on the property in an attempt to collect the debt – the principal balance and the interest – that the borrower owes.
With hard money loans for land, the property the investor is looking to purchase is used as collateral. Hard money land lenders consider the current value or the estimated value of the land once the borrower makes improvements to it to determine whether or not they will fund the loan.
Benefits of Hard Money Land Loans
Hard money loans for land can offer several benefits for real estate investors. These benefits include:
- Because hard money lenders for land are more concerned with the value of the property than they are with the borrower’s credit history, real estate investors have a better chance of securing financing.
- The approval process for a hard money loan is much faster than a traditional loan; borrowers can have access to the financing they need in as little as two weeks or less, while with traditional loans, funding may not be available for a month or longer. Since real estate moves quickly, fast access to funding is important for investors.
- Hard money land loans are usually much more flexible than standard loans. Borrowers aren’t subject to penalties if they prepay the loan; furthermore, lenders are often willing to work with borrowers to meet their specific needs.
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