Hard Money Commercial Loans – Tips for Commercial 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 then marketing.
Before we get into how important understanding and acquiring financing for your commercial land development project is. Let’s review the key traits required to be successful in commercial land development.
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 end goal of making as large of a 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.
However, to be a successful land developer, you also have to have a vision.
For example, you have to be on top of trends in the area you’re going to build. You need to understand the social demographics, 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 a 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 had the foresight to find a property to develop for commercial purposes in an up-and-coming area where land prices were reasonable.
When you are investing in land, ROI and speed of project from start to completion is the name of the game.
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 putting in water lines, sewers, electrical lines, required streets, and curbs. This can be a slow, arduous process.
However, if the developer has a good relationship and is organized, with a bit of luck, the process can go faster.
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.
The Right Development Loan – The Importance Of Managing Costs
When commercial land is being developed, many steps need to be taken and cost out. This is so 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.
To do this, the land developer must be savvy with numbers and financials.
We also suggest finding a commercial lender that’s honest, and you feel comfortable 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.
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’re going to 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. Hard money loans are typically issued by private investors or companies.
Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan.”
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.
When dealing with a traditional commercial bank, the lending process can be prolonged and convoluted. With a 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. If there’s a holding period of less than a year with standard loans, the mortgage is considered unseasoned.
During this time frame, selling or refinancing the loan may not be approved by traditional lenders since they consider the risk higher and the borrower’s reputation is not yet established.
However, with a commercial land development hard money loan from DFW Hard Money, there is no seasoning period. That means you can sell or refinance the loan when you want to.
- No prepayment penalties: with traditional loans, there are prepayment penalties that can detrimentally impact your ROI. With a DFW Hard Money loan, there are no prepayment penalties.
That means you can pay the hard money commercial loans when you want to, and you will not have to pay any of the excessive fees a traditional lender would charge you.
- Flexible agreements for any given situation: When you work with DFW Hard Money, 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.
Make sure you do your due diligence and check that the lender you will work with has good reviews and testimonials. And always trust your gut.
Don’t forget to read the fine print, as 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
DFW Hard Money is a private money lender serving real estate investors who are flipping houses, need funds for commercial property investments, transactional funding, land developments, and more, for over 20 years.
We lend hard money loans using a simple 5 Step Process in the following areas; Colorado, Georgia, Kansas, Missouri, Oklahoma, North Carolina, Tennessee, and Texas.