Any commercial bankers out there?

7 Replies

I wanted to know about a future land development. I purchased cheap acreage located on a major road, very good location. About daily traffic count of 45,000 car. Purchased cost for each acre is 100k. It's only 5 months now and each acre is worth around 250k. I bought the acreage all cash. If I went to a bank and wanted to use land equity as my downpayment, will they value the new amount or just my purchase price?

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The bank will generally want to see your project you have in store to develop the land. The construction loans are at 75 to 80% LTC based on an appraisal. The loan converts to perm. later on or you refi with a new lender.

If you are talking that you bought land for 100k and acre and now want a bank to give you  a loan on just dirt based on a higher value to get your cash back out that is a very tough sell.

The value of the land isn't realized until it is converted to it's highest and best use. You can call some local banks to get their appetite for it. Many banks do not lend for construction loans so just a few in the area likely specialize in it.   

@Joel Owens Thanks for the response. Yes, we have a full development plan on it. The land will be part of our equity piece. The appraised value of each acre is $250k, so I just want to make sure the bank will not turn around and say that we only bought it for a 100k an acre just a few months ago.

The bank may or may not go with the appraisal you have. Certain banks only accept appraisals from a certain list of commercial appraisers in the area they trust.

The bank is lending the money so they make the rules. You could also bring in a JV partner if bank financing proves difficult but would have to give up a slice of the pie.

Some banks will consider value to be at the new appraisal (to be ordered) at least 6 months after you bought it. Start talking to banks. 

I would highly suggest a portfolio or private development funding for your project.  You'll get the equity of your land as your "skin in the game" and could come out with a loan that covers 100% of your development costs. Speaking from experience, commercial development loans from banks are only worth the trouble for a select few. The trade off, of course, is a higher cost of money for the construction phase. But once you're done, refi out of it.

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