One of the major problems that developers seeking to purchase land for development is getting commercial real estate loans. Private loans may be the best answer. Most financiers will want a credible explanation regarding loan repayment because land does not produce income. Therefore, developers who have no cash flow may not get land loans from traditional lenders. Developers turn to peer to peer financiers because:
- P2P lenders cater to consumers who are either ill-served by banks or are not served at all by traditional finance because of their credit scores, or the asset type offered for collateral is unacceptable.
- Private lenders offer commercial real estate loans for the developer to use for minor or major improvements of the raw land. This is an advantage for the developer as no bank generally offer land loans.
- Peer to peer financiers may offer better-priced products. This allows developers to save more money.
- P2P financiers have better terms. With P2P, developers can service their loans for the duration of between 6 and 18 months.
- Developers get enhanced customer experience. P2P lenders offer clear, quick and simple services as most transactions are done entirely online.
Unlike Real estate crowdfunding lenders, banks tend to emphasize more on the cash flow of the borrower. Therefore, it’s more realistic for a developer to opt for a private lender for land acquisition. Lenders will focus more on the value of the land and ability to repay the loan, rather than the credit score of the individual.
Generally, a land developer requires cash down payment of not less than 50% to purchase land. Most Real estate crowdfunding lenders may not surpass the 25-50% loan-to-value to refinance land purchase. However, borrowers can still get a reasonable private lender who can fund up to 65% of the buying price of the land if the developer has 35% in cash. Accredited investors can purchase shares in the property or lend cash to private properties and real estate projects through peer to peer portals such as Blackhawkcorp.com.