Development Loan
A Development Loan is not the same as a building or construction loan. When you first set out to develop a property, there are certain things that need to be done before any type of building or construction financing will be approved. A development loan can be used for the initial purchase of the land, to install basic utilities such as roads, sewers, and water supplies, or to finance the transformation of a vacant tract into a new survey. You'll need to show documented evidence of each of these when you draw up your business plan for new construction.
Building from scratch is a complicated process. That's why many developers buy existing structures and renovate or remodel them for their needs. That type of strategy has its advantages, but you're limited to using only the space already available. If you want to add to that, you're looking at additional permits and costs for demolition, materials, labor, excavation, and removal. When you start from scratch, you'll still incur those costs, but they won't be added to the additional price you pay for the purchase and remodeling of the older, outdated building you chose for your new location.
Real estate developers and construction companies often take out development loans before they do any building so they can evaluate the viability of a new property. Once you've taken out the building loan, you're all in. There's no turning back if you run into a problem with the water supply or road infrastructure. A smaller development loan can enable a company to get those items out of the way and help the estimator price the final construction more accurately, saving the developer money.
If you're looking at the prospect of building a residential or commercial structure on a previously undeveloped tract of land, a development loan is a logical first step. Here at iBank, we'll shop your request to a number of different lenders and find you the best terms and rates available. Most banks and lending institutions that offer development loans also do building and construction loans, so this first step may secure you a long term lending partner for the entire project. Contact us today to learn more.
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