Can I borrow against land to buy another property?

3 Replies

Let's say that I own 2,400 acres of land free and clear. I've heard of people using equity in their properties to buy more properties. Can I use the same strategy with land? This is agricultural land that will never going to be developed.

Does anyone have any experience with this situation?

John, it is possible to borrow against your land but I think a better strategy may be to pledge it as additional collateral when borrowing against the property you're acquiring.  Since the land doesn't produce cash flow it would be a lot harder to borrower against it on its own, especially if there is not business plan for it.

Figure you'd probably get 50% LTV max credit on that land which may be even less since a lot of banks lost money on land deals. In the Midwest ag land can go for upwards of $15K/acre (has gone down somewhat as corn prices have gone down) but I figure $8K is probably more typical out west, assuming your land is out in Colorado. Either way, I figure 2,400 acres could get you a sizable amount of equity to bring to the table.

@John R. a couple of thoughts. 1) if the ag land you speak of is rented/leased then it produces income. That income stream can be leveraged. If it's idle land then you might be able to find someone that would cross collateralize it like @Jim Groves suggested. 

Your statement that 2,400 acres won't be developed is probably not the case. Generally land gets broken down into smaller and smaller parcels. Someone could purchase the 2,400 acres and turn it into 60 40 acre parcels and sell the tracts separately. That often happens. People want a piece of the West and you will be surprised how many people have been able to cash in on that. 

@Bill S. 

@Jim Groves

Thanks for the replies. I have my eye on an apartment complex in the $1.75 million range and I'm looking for ways to finance it. The land is worth just over $1000 per acre and is leased so it does bring in some income. It's family land that I grew up farming and ranching and I've never considered using it as a way to build my real estate portfolio because I never wanted to risk losing it. I've obviously changed my thinking lately. As long as the land is mine it wont be broken up or developed. No amount of money will change that. 

I guess I was just wondering if banks will do some type of cash out refinance on the land or just let me use the land as collateral for the down payment on the apartment? I suppose I just need to call the bank and see what they say.

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