One of the advantages of hard money loans is that the private money lenders who underwrite them are not bound by the same rigid federal restrictions that govern banks and other institutional lenders. This series of blogs will explore the types of out-of-the-box loans in which private money lenders specialize and highlight how hard money loans can be a crucial tool for the savvy commercial real estate investor. There are eight common types of loans that private capital lenders will underwrite which banks typically will not consider.  These types of loans will be explored in detail over eight blogs: Cash-Out Bridge Loans, Loans to Foreign Nationals, Marijuana-Tenanted Properties, Note-Purchase Loans, Non-Recourse Loans, Vacant Land Loans, Tight Timeframe Lending, and Beyond the Typical Requirements.

What Kind of Vacant Land Makes the Best Investment?

Even with hard money loans, it is best to choose vacant land that has entitlements, because these entitlements determine the purpose for which the land can be used and the buildings that can be built there, both of which affect the value of the land. This includes zoning (and any variances), permits, and approval for roads, utilities, and landscaping. It’s also important to note if there are any easements or other legal issues related to zoning and/or access that may affect the future use of the land and thereby affect the value of the land, either adversely or favorably. It is also best to look for vacant land that is in or near metro areas and other desirable geographic locations as these types of land will have more potential value than land that is secondary, tertiary, or rural markets.

Why Use Hard Money Loans to Buy Vacant Land?

It can be difficult to find funding for land without improvements because this type of loan is viewed as high risk by banks and other traditional lenders. Some private money lenders are willing to consider land loans.  Others are not.  Most private money lenders require that the vacant land already have entitlements before they will approve a loan request to purchase the land. Hard money loans (frequently also called bridge loans) can be used to acquire the land initially and then hold it until a construction loan can be secured from a bank lender. Additionally, depending on the specific situation, a private money lender may also be willing to include additional funds in the loan that can be used to begin developing the land in order to qualify for a bank loan.

Vacant land loans are just one example of the flexibility and willingness of private capital lenders to work with their borrowers to find creative, outside-the-box  lending solutions to  financing problems that arise when banks are not willing to consider the specific loan request. Check out the next blog in this series, Tight Timeframe Lending, for another example of how hard money loans can work for you.

For more information about Montegra’s vacant land loan program, contact us at 303-377-4181 or loans@montegra.com.