BaySierra Financial, Inc. (BSF) has been making land loans since 1990 on all types of land in Northern California. BSF has made loans on single lot properties; subdivision land, whether unmapped, tentative mapped or final mapped; agricultural properties; forest lands and vineyards.
We have both institutional and private financing available for land and land held for development. Institutional requirements vary significantly from lender to lender depending on their appetite for land loans and the state of the real estate industry or general economic conditions.
Private equity financing can be more flexible and recognizes that value can be created by appreciation and the development process, not just by cash invested.
For either lender, land is difficult to finance because generally it has no income stream, it may take both time and money to realize value and when the property has been developed to its highest and best use the real estate market or economy may have turned unfavorable.
Further, land held for development is one of the most difficult types of loan to finance since many times the true value of the land is not known given the zoning restrictions; development restriction, whether by law or regulation; environmental concerns, other governmental restrictions and finally financial feasibility.
As some have said, there are too many unknown - unknowns or known - unknowns in land development, which forces lenders to take a more conservative approach.
For the borrower, the upside potential in taking a property from raw land through to final map can increase the property's value dramatically. The risk to both borrower and lender are significant if the project fails in the development process or worse if it is approved, developed and then market conditions make it un-saleable.
Consequently, rates and fees for land loans by institutional lenders vary depending on market conditions. Private financing rates and fees are higher than most other real estate loans but many times private loans are still cheaper and more flexible than a partner.
Because of these inherent risks BSF's private equity financing typically will not loan more than 50% of land value and needs to know how the borrower plans to pay interest. Experience of the developer is also an important component in making land loans as is having the right team of land development specialists assisting the developer.
Other types of land loans, such as agricultural property, are available on a case by case basis. BSF takes into consideration the land, the risks of development (known and unknown), the borrower's income and credit history in reaching a loan decision.
Many borrowers hold their land in limited liability companies (LLC's) and typically BSF asks for the personal guaranty of the principal members of the LLC.
You may contact any of BSF's experienced loan agents to discuss your land loan needs.