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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   December 2006

Raw-Land Loans: The Direct Route

Expedite the process in raw-land transactions by approaching direct private lenders first

In today’s commercial real estate market, money is definitely more fluid. But obtaining it can still be a challenge for brokers and borrowers when it comes to creative loans.

In particular, loans secured by raw land can be hard to pin down. You and your borrowers may save significant time if you look to direct private lenders first.

Pursuing raw land

The primary reason most borrowers pursue raw-land loans is to avoid losing an opportunity — one that may conceivably never come around again.

For example, picture this scenario: Your clients have the chance to acquire a prime piece of land on Florida’s Gulf Coast. The seller is eager to dispose of the property, and to proceed with the deal, you have to come up with the money quickly. Where do you go? 

Initially, many borrowers gravitate toward the traditional route and contact a conventional lender. But your borrowers will be required to have a substantial source of cash, proven experience and significant liquid assets. If they lack one or all of these, most banks and traditional lending institutions simply will not loan them the money.

If they’ve already entered into a contract with a traditional lender to purchase the property, however, they may find out too late that the lender won’t give them the money. When it’s late in the game, the only real solution (unless the property-seller is willing to hold paper) is to approach a private lender.

There’s an object lesson here: Your raw-land borrowers should consider going to a direct private lender first. Don’t squander your time going down the same old traditional paths, only to end up disappointed.

Direct lenders often can negotiate better terms. Reputable firms can ensure that your money will arrive on time, as promised, and that your clients won’t lose their deposit by default. Ultimately, your clients will be the owners of some valuable real estate.

When speed counts

Let’s consider another scenario. Your clients have successfully purchased some property, the land is in their name and they have begun development. During the construction phase, some unforeseen situations arise. Development costs are exceeding projections, an unexpected complication with the terrain is causing higher infrastructure costs and they are facing a grim reality: They are running out of money. What’s more, the only collateral they have is in the property they’re now developing.

Where can they go for a bridge loan based on that collateral? Not to conventional resources or traditional banks. The private hard-money lender is their only option. Not only can private lenders help your clients, but they also can do it quickly. This means your clients will lose as little development time as possible.

Yet again, there exists the same lesson to the story — contact the direct private lender sooner rather than later.

In addition to helping you expedite the process, private lenders often are faster than conventional banks in dealing with local municipalities in these cases. They often are unhampered by the bureaucratic restrictions and layers of loan committees typical with traditional lenders. This allows hard-money lenders to step in to resolve legal and financial dilemmas and close the deal.

The top private lenders can close virtually any deal because they offer flexibility in loan configuration, specialized attention and quick turnaround for almost any type of property. Their timeliness can keep your clients in line with their projections.

Indeed, many direct private lenders offer strategies to make some of the fastest raw land loans in the industry, despite what the market may or may not do. They know that even though some real estate markets are flattening, people are still developing property.

Borrower requirements

The financing for a raw-land scenario depends on what the borrower brings to the table. Direct private lenders look at every transaction closely, then make recommendations based on the borrowers’ credibility and the scope of their vision.

They often issue commitments and close loans with just raw land as the collateral. Therefore, the lenders base loans primarily on the asset itself. They will undertake to do nearly any raw-land property type as quickly as possible.

Although costs and fees may be somewhat higher with direct lenders, they are less than what they would be if your clients had to surrender equity to partners or to lose the opportunity altogether.

•  •  •

In the raw-land arena, no two loans are ever alike, which is where the creativity comes in. Hard-money lenders’ nimbleness separates them from the lending traditionalists. Whether the property is beachfront property, mountain terrain or forested land, hard-money lenders often can see the value in the clients’ vision.

Because the market needs their kind of flexibility, creativity and flat-out speed, private-money lenders likely will keep growing.


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