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In land development, many factors determine the success of a project. One of them is the ability to secure the necessary financing to complete the land development project.
There was a time that finding funding for a land development project was limited to a small number of options such as traditional institutional lenders such as banks. These banks usually do not fund small projects or projects that are not being developed by “established” land developers.
There have been many projects left unrealized due to the inability to secure funding in time. This changed drastically with the advent of the Internet to locate non-traditional funding sources.
6 Ways to Creatively Fund Your Land Development Project
This time-tested approach will never disappear entirely, but there are a greater variety of loan types and more flexibility in structure than before. Loans still fall into these basic categories:
- Conventional loans: From banks, insurance companies, via commercial mortgage-backed security products, credit unions, etc.
- Private loans: Borrowed from those you know and with whom you have a relationship.
- Hard Money loans: Funds can come from a variety of places, usually placed through a mortgage broker that lends out private clients’ money.
In some cases, like rehab projects, part of the financing for a land development project may come from a seller. One of the biggest advantages to developers is that it can be less expensive money than loans from other sources. It also keeps the seller involved and caring about the property. An advantage for the seller is it often helps them to delay or lower their tax burden on the sale.
Joint Venture Partnerships
In this scenario, a financial partner joins the owner/equity group. This financial partner puts up financing in exchange for a percentage of the profits. There’s a variety of ways to do this, with various partners adding value in different ways.
An exciting development for the industry is the rise of crowdfunding platforms dedicated to real estate. These sites offer pre-vetted projects to registered investors and manage the entire transaction online. Projects are exposed to a huge audience of investors and funding goals are often met with remarkable speed in this way. This is a rapidly growing area and has attracted the notice of many traditional lenders as well.
In real estate syndications, a group of investors fund real estate loans in return for a percentage of the profits. Or, they can be paid a set return on their initial loan.
This involves trading the equity in a separate property into a real estate deal or project in exchange for being paid when the real estate property sells. In this scenario, one can invest equity as part of the down payment for interest in a completed project.
Securing the necessary funding can be a big project hurdle, but considering some of these creative options is one way to get past it. Developers who are flexible are able to secure capital from several sources to make the plan work.
About Gap Equity Loans
Since 2008 Gap Equity Loans has been brokering secured equity loans to ex-pats and locals that need creative project financing to start, complete or expand a project, renovate their home, buy a new car or get that must have item.
“Someone is closing deals today, regardless of the weather, economy, politics, or any other excuses. Get out there and add value to people’s lives by helping them move forward toward their financial freedom, peace of mind, and legacy.“
We work with residents and non-residents alike using a similar process as commercial lenders but without the lengthy wait time and our own personal touch. Aside from lending we offer legal and investment services.