How To Finance Undeveloped Property Purchases
Different loans serve different purposes. Whether your company is using alternative lending or a bank, loans built for certain investments serve specific purposes for the borrower and the lender. When buying an undeveloped property, whether it be for the expansion of a preexisting building or the site of a brand new location, it’s important to understand the terms specific to financing the purchase of an undeveloped lot. These terms can tie into the amount of work that needs to be done and the lender’s personal comfort with providing a loan with little immediate collateral available.
When a lender looks at an undeveloped property, they see collateral with little value to fall back on if the borrower defaults. This is why many banks no longer offer loans for businesses looking to purchase these properties. Alternative lending provides outlets that are more accessible, but it is important to understand that these lenders still want to provide for investments that will pay their loan back on time. Alternative loans are more accessible for businesses seeking to develop untouched land, but you will need to study the loan terms and requirements carefully as lot and land loans can be more work intensive than loans taken out for buying a new building.
Interest rates and down payments for an undeveloped property are some of the highest in the world of lending. Down payments on these loans are typically much bigger than ones paid for finished lots and interest rates often outweigh those set for a loan taken out to buy a completed building. A business looking to take out a loan to build on these properties should prepare financially prior to applying. Sometimes, this preparation will also require additional collateral, such as invoices or another piece of real estate your business owns, as a part of the lender’s terms. As these loans are also short-term loans, a borrower should also be aware that lenders are counting on a fast return on these investments and will be banking on a company building on the property within a certain amount of time.
These loans also require a lot of time behind a desk. Due to the more hands-on nature of the underwriting involved in a loan for an undeveloped property, the time spent on paperwork will be its own investment. Even with the faster approval often seen by those taking out alternative loans, it will still take more time than other loans to complete.
Loans for an undeveloped property can be difficult to acquire, but not impossible. With the proper time dedicated to preparing and saving for these loans, a company can find themselves building a new and lucrative development all their own.