Do you have a real estate development idea that could tap a lifelong cash flow for you? Such a large-scale real estate development project requires a generous source of funding.
This is where an acquisition and development loan comes to your rescue!
Here’s everything you need to know about acquisition and development loans before applying for the loan program.
Acquisition and Development loan
An acquisition and development loan is ideal for real estate developers who work on expansive development projects. The loan is meant to cover all the bases of a real estate purchase and development project. From covering the cost of raw land to facilitating horizontal improvements, acquisition and development loans are designed to finance projects such as recreational parks, hotels, residential units, and commercial buildings. Here’s how it works.
Acquisition and development loan – How does it work?
These loan programs are always secured against real estate properties. The private money lender approves the application and releases funds within a short time.
As soon as a real estate developer has received the funds, they can use part of the proceeds to purchase raw land. The remaining funds are used to carry out horizontal improvements such as grading the land, zoning, and installing utilities such as water supply, electricity grids, and sewer systems to transform the land into a construction-ready building site.
As soon as the utilities have been installed, the real estate developer can sub-divide the land and work with other real estate developers to construct new properties.
Here’s How to Get Approved For an Acquisition and Development Loan
Since lenders are financing such an extensive real estate project without any existing property, these loans feature many stringent requirements for the borrowers.
- The location of the raw land and the economic and political situation surrounding the area. For instance, if the land is located in a warm climate area, lenders are more likely to invest as these areas have a high inflow of immigrants from the North.
- Moreover, the underwriting team will also consider the zones of the property and how the borrower’s project can attract more investment and customers.
- The borrower’s real estate history and their successful property development experiences in the past
- A larger down paymentof 25-30% in cash can help reduce risk, gauge the borrower’s commitment to the project, and lower the LTV ratio for the borrowing party.
These factors can help real estate developers secure an acquisition and development loan for their new projects. Borrowers must have the right location, a comprehensive construction plan, and a fool-proof exit strategy to repay the loan on time.
Choose A Leading Private Money Lending Firm For An Acquisition And Development Loan
A reputable private money lending firm such as Commercial Private Equity can help you secure an acquisition and development loan in time.
Since our private money lending firm has been in the real estate industry for the last 75 years, we excel at drafting flexible loan terms for real estate developers and investors. From offering low-interest rates to low LTV values, our loan terms are designed to facilitate and finance your large-scale real estate projects.