One of the most important things to understand about applying for land loans is the value usually goes up over time. That means land is a good investment, particularly if it’s located in an excellent commercial location.
Financing one of these projects usually comes down to having equity or debt. Using your own capital is called equity financing. Debt financing is where a lender provides you the funds.
Implementing a strategy for financing one of these land loans is critical.
- Having the land appraised is the foundation for construction loans and/or commercial mortgages. These can include what’s called an income capitalization approach which highlights the income potential. If the land is already developed, any structures on it are valued. Environmental factors, plus the size of the shape of a plot are also considered.
- There are other risks that a company needs to consider when it is looking at financing land loans. For example, it’s important to determine if they can obtain the proper permits and zoning. Developing the land also carries a certain amount of risk. It’s important to consider what will happen if your company encounters delivery delays and your estimated costs change. It’s always a good idea to have a secondary financing strategy if you need to bear unexpected costs along the way.
- Some of the other strategies you should consider center around things like capital market risk. A change in interest rates can adversely affect your construction costs. That can also hinder a potential buyer’s purchasing power.
OMJ Mortgage Capital is your reliable source when you’re looking to finance land loans. We have strong relationships with lenders who specialize in this type of financing and have expertise in the real estate market. We are an excellent choice when you’re looking for an outstanding Toronto commercial mortgage broker.
