Raw land investment is a difficult loan to have done. The borrower needs to show a strong financial backing in both net worth and collateral. A lot of raw land investment is speculative and, without buildings on the land, all a borrower has for a lender is projections and dirt.
• Check the zoning of the property to know what you can build on it.
• Check the topography to understand the difficulty of development.
• Understand the public utilities and the cost of their hook-ups or how far they are.
• What is the annual tax obligation? How much will it cost you to sit on the property?
• Check for usage restrictions (please explain what these are?)
• What are the required building setbacks. Most properties have them.
• Is it located in a flood zone or is it landlocked, if so what are the easements for it?
• Size and shape matter for the parcel. Make sure it makes sense.
• Is there a moratorium on the property? This could be a significant cost and construction factor, if there is one.
• Lastly, are there contaminants on the property in the form of junk, tires, gas, oil, etc... that you would be responsible to remove?
Have you done your homework on your land evaluation? Lenders want to make sure you have done your due diligence. A strong financial backing, industry experience, and other real estate collateral are key point indicators of a chance for successful funding.
Missing one of the three above factors will take FDIC-insured lenders out of the scenario and alternative or hard money lenders will lend the money at slightly higher rates.
• Check your monthly payments with our Business Loan calculator.