Which hard money loan is right for your project?
Not all projects are the same, and therefore not all projects need the same type of funding. When it comes to financing your real estate project it’s important to find the right loan solution for your needs–and it’s always helpful to know a bit about various loan types when you first talk to your lender.
Land Development Loans
A land development loan is probably the best option for you if you have raw or undeveloped land that needs to be made construction-ready. A land development loan can finance entitlement of the bare land, so sewer, electricity, gas lines, and roads can be added. A land development loan may also fund soft costs, such as hiring architects, engineers or other consultants, and can fund the costs for subdividing land that will be sold as separate lots for commercial or residential use
Generally, construction loans are short-term loans used for real estate projects such as multi-family housing and commercial and industrial buildings, though you can also use construction loans to buy land or build or renovate existing structures. As you reach milestones for your project, you or the builder can request draw payments for completed work. Once an inspector has verified that the work is done, you would receive a disbursement. To retire the loan, you obtain a final appraisal and inspection on the property and refinance to a more fitting loan, such as a mortgage, or pay off the construction loan.
Bridge Financing Loans
Bridge financing loans are temporary loans, typically ranging from 6 to 12 months, that provide funding until a longer-term source can be arranged. Bridge loans are used in commercial real estate for many reasons, including expanding a product line, buying out a partner, or bridging the gap between when a construction project is completed, and the project is refinanced or sold.
Heavy Rehab / Redevelopment Loans
Redevelopment loans fund major renovations such as tenant improvements, remodels, expansions or redevelopment on an existing building. A redevelopment loan is usually valid for 6 – 18 months. You wouldn’t use a redevelopment loan to purchase land or build new construction.
Acquisition and Development Loans
An acquisition and development loan (A&D) is appropriate if your raw land is ready to be developed, or is already developed but needs improvements to the infrastructure or existing buildings. Most of the time, an A&D loan covers both the purchase of land and cost of improvement needed before the development can be completed.
As you may have noticed, there is some overlap between loan types and many other factors. Therefore, it’s a good idea to work with an experienced lender who knows your market, is willing to take the time to fully explain things, and offers good terms.
Broadmark Realty Capital specializes in hard money loans designed for real estate investors and developers who require quick closings, outside-the-box thinking, and the utmost professional service. All our real estate loans are backed by careful, in-house underwriting, strong knowledge of the local market, fair pricing, and the idea that construction loans are very much a partnership: we are your advocate from day one through the completion of your project. Need a loan? Contact one of our lending experts today!