Real Estate Development Loans
What Are Real Estate Development Loans?
Real estate development loans are capital advancements provided to borrowers who need funds to break ground on a development project, building of structures, and holding of the finished product through the leasing stage. Investors typically rely on real estate development financing to do one of two things: buy raw land to eventually build on or to tear down an existing building in order to build a new one.
There are typically four types of real estate development loans. The most popular types of real estate development loans include:
- Acquisition Loans
- Development Loans
- Acquisition And Development Loans
- Construction Loans
Acquisition loans are specifically used to finance the purchase of undeveloped land are often used to buy land with no intentions of developing on it. While common, acquisition loans provide little room for action, and must typically be accompanied by subsequent loans to develop the land further.
Assuming borrowers want to develop the land they recently acquired, they may need a loan to move forward with those plans. Development loans do just that. Borrowers take out development loans to make improvements on the land. Leveling, building roads and running water lines can all be accomplished by taking out a development loan. Development loans are necessary to turn raw land into a building site.
Acquisition & Development Loans
Borrowers who want to acquire raw land and develop it at the same time need an acquisition and development loan. These loans enable a borrower to buy raw land and turn it into a building site.
Construction loans are used to finance the building or renovation of a real estate project. It differs from other loans in that the developer receives the money in monthly draws as development progresses rather than in one lump sum at the beginning of the project.