Question On Land Ownership And Bank Financing
I'm sure this is a pretty basic question, but what percentage of land ownership do banks require when applying for a construction loan (not acting as own GC)? Thanks.
I'm sure this is a pretty basic question, but what percentage of land ownership do banks require when applying for a construction loan (not acting as own GC)? Thanks.
It is a varying factor. To tell a truth it is conditioned in how much money the lending institution has in present time monies.
But for your purposes in the Greater Los Angeles Area from whence came you.
First you do an appraisal. Preferably by a Member of the Appraisal Institute. MAI
Made as Instructed. .
You show your land value say at $100,000. You evidence this with an appraisal.
You then present your plans complete with building permit ready to go.
You show your breakdown of costs with about a ten percent fluxuation in costs and a ten percent contractors profit. That bid is attached with two others. One lower and one higher.
You present your financial statement and credit report. Fico 650 and climbing.
You have an open account with the bank and for this particular moment you show two or three Certificates of Deposit in maximum amount also with the same bank. (I have no idea who really put up the funds for these items).
You meet your loan officer and you speak with great knowledge of the many pieces of real estate you have been involved in. You might mention that you have a close personal relationship with the President of the Bank, a member of the board of Directors whatever.
The Loan officer will hesitate and shake his head. These are rituals. Just keep smiling and casualy mention that your Brother in Law has just been hired by the FHA and will be assigned duties in portfolio buying in the secondary market. Or you might mention that your close personal friend is a bank examiner up for promotion and is looking for a "Smelly" Thats a bank that might have a hidden problem.
Sit back relax and after a few days of absolute pure unadulterated BS you get the loan. If the Bank is Japanese they just transfer the funds to your account. If it is California they will pay you in draws upon proper tender of releases and paid bills, God they are so chicken.
Thats about it unless you are trying to obtain a Land Value Credit, I know a LVC. who the hell knows that I just got here.
Thats it, have fun, do not lose your temper when the Loan officer suggests you need Dormer Windows on the upper front elevation and you have presented a low, stay in the ground line modern sweepy structure. Just bite your lip or as do I take to strong drink and time alone with my cat.
Enjoy. Lucius
Lucius,
Thanks for the extensive post. Now that you've answered my original question, I've got a whole bunch of follow-up questions.
First of all, you submit and have the building plans approved before you apply for financing to obtain the land? Since you're from Hollywood, I'm sure you're well aware that almost all affordable land is hillside. And since almost every piece of hillside land is different, it's going to need a different set of plans for it to work, so you have a different set of plans created for each potential lot?
My second question is, how expensive are piles? I know it's a broad question and varies with each project, but I'm looking for a ballpark figure. Are they in the tens of thousands or is it common for cost to exceed a hundred thousand?
And my last question is, what kinds of projects have you been working on lately?
Thanks for all the help,
Jon
[ Edited by atlas310 on Date 12/06/2003 ]