There are several ways to fund a real estate project, including real estate development loans. Because banks are reluctant to finance developers, working with a private lender is essential. That’s where Malve Capital LLC comes in. We offer a variety of property development loans, with little documentation required, to get your project off the ground. Contact us today to discuss the available lending options.
What Are Real Estate Development Loans?
Real estate development loans are funds extended to borrowers who require financial assistance to start a project, construct a property, and hold it throughout the leasing phase. Investors usually turn to real estate development financing for one of two purposes: purchasing undeveloped land to build on or demolishing an existing structure to replace it with a new one.
Types of Real Estate Development Loans
The most common types of real estate development loans include:
- Acquisition Loans
- Development Loans
- Acquisition And Development Loans
- Construction Loans
Acquisition Loans
As the name implies, acquisition loans finance the purchase of undeveloped land, frequently without any immediate development plan. Although acquisition loans are popular, they offer limited flexibility and must be supplemented by additional loans to develop the land.
Development Loans
To proceed with any plans to develop recently acquired land, borrowers may require a loan. Development loans serve this very purpose. Borrowers take development loans to make improvements, such as flattening the terrain, constructing roads, and installing water lines. These loans are critical in transforming undeveloped land into a construction site.
Acquisition and Development Loans
Occasionally, borrowers wish to acquire undeveloped land and develop it simultaneously. Fortunately, there are loans designed for this: acquisition and development loans. These loans enable borrowers to purchase raw land and transform it into a construction site. Among the various real estate development loans accessible, this option is the most adaptable.
Construction Loans
Construction loans fund the construction or renovation of a specific real estate project. These loans differ from other lending products in that the developer receives the funds in monthly installments as the construction progresses rather than as a lump sum at the project’s outset. As you withdraw more money, the monthly loan payments increase accordingly.
Understanding the Capital Stack
It’s common to rely on multiple funding sources when developing a project. The capital stack refers to various layers of financing that make up a project. Each loan adds to the stack: high-priority funding sources at the top and more senior debt at the bottom. In financing, the capital stack includes the following:
- Senior debt
- Mezzanine debt
- Preferred equity
- Common equity
Senior debt is at the bottom of the stack and typically the highest priority but the lowest-risk debt. Common equity is at the top of the capital stack, representing the lowest priority or highest-risk debt. Borrowers repay common equity after the priority debt is paid off. In short, the capital stack ranks the various financing methods involved in a real estate transaction.
The Bottom Line
Financing a real estate project is complicated; however, several real estate development loans are available for every scenario. Contact our real estate finance specialists to learn which options best suit your objectives.