When it comes to locating and securing subdivision development financing, you can assign all the financing sources out there into one or more of the following categories.
The first category and most common source of development financing is a straight debt lender where a loan is granted against the equity in the subject property and further advances are made as the value of the property is improved from completed work.
This is straight mortgage lending where there are fees to get a deal in place and then interest payments to cover the cost of capital for the remainder of the loan term.
The second group of development loans would be debt based lending where there is a profit participation by the lender or lending group. This type of deal will apply when there is insufficient equity in the project to support a straight debt deal.
The profit participation will provide an incremental return to the lender above and beyond the interest rate being charged to compensate the lender for the added risk of the deal. Under this type of deal structure, there is not likely any change in ownership on the deal but there will be a defined agreement as to how the profit participation will work and be applied.
The third group of subdivision development financing solutions would be a debt and equity combination of some sort where the source or sources of capital are not only providing a development loan, but are also acquiring part ownership in the project to inject more equity, which can be required to secure the debt portion of the deal.
The can be fourth group which is the addition of an equity investor only, but this is less common due to the higher cost of equity over debt. Most projects will want to have as much debt as possible to minimize the cost of capital and to retain as much ownership of the project as possible.
Each subdivision project financing is going to be a customized capital solution that will fit into one of these groups.
The type of project and location will have a lot to say as to what type of deal is going to be available to you to consider as unconventional projects in remote areas will have considerably fewer options that a traditional, high demand project in a large urban center.
Lender criteria can vary considerably among lenders/investors in a given group as well, so its going to be important that you are targeting both the right group for financing, and the most relevant sources within a given group.
The best way to do this successfully is to start early in the planning stage, and to work with an experienced mortgage broker who can advise you as to the different financing options that may be available to you.
Click Here To Speak Directly To Toronto Private Mortgage Broker Joe Walsh For A Free Assessment Of Your Subdivision Development Financing Options