Hard Money Commercial Loans: 6 Essential Tips for Land Developers
Being a commercial property developer or a land developer requires many skills to be successful.
You’re essentially the project’s conductor, taking it from initial land purchase through land development and marketing the final outcome.
Before considering the importance of understanding and acquiring financing for your commercial land development project, let’s look at some useful tips on key traits required to be successful in commercial land development and land the best hard money commercial loan and hard money lending for your business.
Tip #1 – Commercial Land Development:
Choosing The Right Lender & Loan
Seasoned commercial land developers will quickly share that the job is much more than finding a great location where it’s feasible to develop your vision.
A successful developer must find development loans or funding.
Also, obtain planning permission, oversee building, and more, all with the overriding goal of making as much profit as possible.
Think of the role as conducting many moving pieces all at the same time.
Finding the right lender is essential.
Harold Samuels, the founder of Land Securities, said, location, location, location, and he was correct.
Tip #2 – You must have the vision to be
a successful land developer.
For example, you have to be on top of trends in the area you will build.
You need to understand the social demographics and supply versus demand today and in the near future. It requires a careful study of local economic factors, also known as macroeconomics.
ROI – Developed Land v Speculative Location
After all, if you buy land in an already developed or known popular area, you’ll pay top dollar for it.
That will mean that your return on investment (ROI) will be less than if you could find a property to develop for commercial purposes in an up-and-coming area with reasonable land prices.
When you are investing in land, the ROI and speed of the project from start to completion are the names of the game.
Tip #3 – Relationship & Numeracy Skills Are Essential
You’ll need superior relationship skills to orchestrate lawyers and commercial property lenders.
The right land development lender bringing the right land development loan will be essential.
This is where a solid understanding of numbers and financial information is critical.
Commercial Land Development Loans – Project Cost and Profitability
To calculate your costs, it’s essential to understand the difference between a developer and a builder. To know exactly where you will draw the line for your responsibility and thus costs.
At first glance, the difference between a developer and a builder seems simple.
‘One would say, ‘developers develop, and builders build.’
To further define the roles, we’ll add that the developer is responsible for taking the raw land they’ve purchased. Then they must acquire the many permits that are needed.
The land developer is also responsible for installing water, sewers, electrical, required streets, and curbs. This can be a slow, arduous process.
However, the process can go faster if the developer has a good relationship and is organized, with a bit of luck.
The builder’s role is to erect the building but to confuse matters a bit; we’ll note the builder can also be a developer, wearing both the commercial land developer and builder hat.
Whether or not both hats work or just one, it’s important to note that there are very different tasks that need to be completed by the land developer and builder.
Tip #4 – The Right Development Loan – The Importance Of Managing Costs
When commercial land is being developed, many steps must be taken, and costs must be calculated in detail.
This lets you know how much money you’ll need to borrow to cover your expenses.
The commercial land developer’s ability to clearly define the cost of the commercial land development project, manage expenses, and the speed of the project, will impact the profit made.
Turning a high ROI is the project’s end goal.
The land developer must be savvy with numbers and financials to do this.
Tip #5 – Find An Ally In Your Lender
We also suggest finding a commercial lender that’s honest, and you feel comfortable dealing with.
A good lender will be a valuable asset to you and your commercial project as they can guide and consult you in the lending process.
Finding a trustworthy company or person will help speed up the process in other projects.
They will also learn how you work and your specific requirements, which takes away the ‘learning curve’ in the business relationship.
The Benefits Of Hard Money For A Commercial Land Development Loan
Land Development – Getting the right lender & loan is essential.
You can acquire many types of loans, but we will review hard money loans for commercial development.
Wikipedia defines a hard money loan as:
“a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Private investors or companies typically issue hard money loans.
Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter loan duration.”
Hard money loans are attained when a commercial land developer wants money quickly and is willing to pay a higher interest rate for quick access to the funds.
Hard money loans enable the draw process to be quick and easy no matter what the project is.
In some instances, the funds for the commercial property loan can be available in as little as 24 hours.
The lending process can be prolonged and convoluted when dealing with a traditional commercial bank. With a private lender/hard money lender, you don’t have to cut through all of the red tape and many levels of approval that are required when lending from a commercial bank.
Further Benefits Of A Commercial Hard Money Loan
Also, commercial hard money loans (AKA land development loans) are fast and include:
No seasoning periods: seasoning refers to the age of the mortgage. The mortgage is considered unseasoned if there’s a holding period of less than a year with standard loans.
During this time frame, selling or refinancing the construction loan may not be approved by traditional lenders since they consider the risk higher and the borrower’s reputation is not yet established.
However, there is no seasoning period with a commercial land development hard money loan from ourselves. That means you can sell or refinance the loan when you want to.
No prepayment penalties: with traditional loans, prepayment penalties can detrimentally impact your ROI. With our loan, there are no prepayment penalties.
That means you can pay the hard money commercial loans when you want, and you will not have to pay any excess fees a traditional lender would charge you.
Flexible agreements for any given situation: When you work with our experienced team, we work with you to create a flexible agreement that meets your needs for the project.
Our goal is always to create a mutually conducive arrangement that is a win/win for both you, the commercial land developer, and us as the hard money lender.
For the best real estate development loans, look no further than ourselves.
Here are 10 types of commercial projects
you can fund with a hard money loan:
- – Land Developments & Commerical Land Development
- – Mixed-Use Developments
- – Vertical Construction
- – Office Buildings
- – Medical Offices and Facilities
- – Strip Centers
- – Apartment Buildings
- – Warehouses
- – Hotels and Hospitality
- – Restaurants
We can’t emphasize enough the importance of being able to trust your lender when considering a private money loan.
Tip #6 – Reviews & Your Gut
As a real estate investor, you must do your due diligence and check that the commercial hard money lenders you will work with have good reviews and testimonials.
And always trust your gut.
Don’t forget to read the fine print.
If something seems too good to be true, it probably is.
We have to add that DFW Hard Money also considers profit-share transactions to make financing easier for a commercial developer.
About DFW Hard Money
We are a private money lender serving real estate investors, those needing funds for commercial property investments, transactional funding, land developments, and more, for over 20 years.
To learn more about DFW Hard Money as a commercial hard money lender – call (817)200-7575 or complete a no-obligation commercial lending application today by clicking the button above.
Further topics that may require research:
Bridge Loan | Flip Loan |