Private Money Land Loans

Private Money Land Loans

Private Money Land Loans
We seem to​ have touched a​ nerve with our raw land loan product .​
It is​ very popular with our client base,​ and it​ is​ easy to​ understand why .​
First of​ all,​ the​
banks pretty much stay away from raw land .​
There is​ no way to​ process raw land loans with an​ assembly line approach to​ lending .​
The only way to​ evaluate a​
raw land loan is​ to​ put on​ your boots,​ roll up your sleeves,​ and prepare to​ get a​ bit dirty .​
It is​ also necessary to​ review stacks of​ documentation,​ have
conversations with city and county governmental authorities,​ and to​ make decisions based on​ an​ assessment of​ various probabilities with the​ understanding
that there are no certainties when it​ comes to​ raw land development.
So,​ as​ it​ turns out,​ our only real competitors in​ this niche--as far as​ I​ can tell--are other private money and equity type lenders .​
Well,​ for some reason
that I​ don't really understand,​ many of​ those lenders won't loan more than about 50-55% LTV on​ raw land .​
We feel that this gives us a​ significant edge,​ as​ we
are able to​ offer loans on​ raw land at​ as​ high as​ 75% LTV .​
Let me give you​ one example of​ the​ kind of​ thing that we do.
Scenario: We were approached by a​ developer seeking a​ loan on​ a​ forty acre parcel of​ land just outside the​ city limits of​ Eugene,​ Oregon .​
Our borrower was in​
the process of​ applying for a​ zoning change,​ which would allow him to​ then subdivide the​ property into four ten acre lots .​
If all went according to​ plan,​ he
stood to​ make a​ very tidy little profit.
Problem: Our borrower needed a​ loan for 75% LTV on​ raw land and needed to​ base the​ value assessment on​ the​ future value of​ the​ lots .​
The future value of​ the​
lots was based on​ the​ borrower being able to​ successfully obtain the​ zoning change and then successfully complete a​ partition,​ via the​ county,​ into four
separate building lots.
Analysis: We went out and walked the​ property with the​ borrower .​
We also visited and walked a​ number of​ comparable properties .​
We listened to​ our borrower's
plan and his explanation of​ why he believed it​ would be successful .​
We reviewed all of​ his correspondence with the​ county and his zoning change application
and all of​ the​ supporting documentation .​
We talked to​ the​ county ourselves to​ assess the​ probability of​ success .​
We spent easily 30 hours researching this
project,​ and in​ the​ end we concluded that our borrower was for real and that his plans were on​ target and we determined that there was a​ very high likelihood
that he would succeed.
Solution: We arranged a​ $375,​000 loan (at 75% LTV based on​ future value),​ with a​ three year term and a​ rate of​ 13% per annum .​
The loan involved a​
construction holdback for money to​ be spent on​ development of​ the​ lots,​ and we included 18 month's worth of​ pre-paid interest in​ the​ loan,​ so the​ borrower
would have no cash commitments during the​ development stage of​ his project.
--Jeff Chaney - VP California Private Money Loan

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