Land Development Financing Versus Building Construction Financing
“Land Development Financing Can Be Much More Difficult To Secure Than Building Construction Financing”
Land development financing either for a subdivision or site development work prior to building construction can be considerably harder to locate and secure at times compared to conventional construction financing.
The main reason for this is the amount of variable that are associated with land development work as compared to building construction that is being performed under a building permit.
With land development financing, the magnitude of risk is much higher due to the unknowns associated with moving earth and working in the under ground. More things can go wrong and/or will take more funds to complete than budgeted. And unplanned items can also crop up that have to be dealt with.
Needless to say, there is a considerable amount of skill required to manage land development projects which is also why builder or developer experience tends to be the first main criteria considered by most sources of land development loans.
And experience can relate to a number of things such as 1) the number of projects the land developer has worked on of similar size and scope to the one requiring financing, 2) the degree of success they have had completing the project within the regulatory requirements and budget, 3) the amount of financial success or failure they have encountered from past projects, and 4) the level of customer service they have extended to those they have sold developed property to.
Outside of developer experience, there are many other critical elements that a construction lender will look at when considering land development financing including the amount of pre-sales that have been made, the source of the budgeting estimates, the amount of equity invested in the project, and the overall timelines and details for both completing the work and reaching the planned point of exit just to name a few.
Also, depending on how the business model for a given project is structured, it may not suit the lending/funding requirements of certain lenders so its going to be important to understand who in particular will be interested in a deal, or how the deal will have to be structured or altered to meet the sources of funding that are available to the developer.
The best way to land development financing is to work through an experienced construction mortgage broker who has access to a broad cross section of commercial mortgage lenders that will consider these types of projections.
If you are in the early planning stages of a land development project, or in the middle of an ongoing project, I suggest that you give me a call so we can go through your requirements together and discuss different land development financing options available to you.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel