Real estate developers are very knowledgeable about the usual 15-year and 30-year mortgage. Long-term real estate funding, as well as line of credit and mortgage financing, worked in the past and continues to work. But really, these types of financing have been used for renovation or reconstruction, not really for real estate development projects like hotel real estate development.
You might be in a state of shock if you were told that there's a substantial gap between a development project and a renovation project. Similarly, you might be surprised that long-term mortgage financing may not necessarily work as well as real estate development financing. Each has its own function and purpose. As player in the industry, you might think you know enough of the ins and outs of the trade. But you are about to find out something you've probably never heard about before.
With a mortgage financing, you are acquiring a property for the long-term, say 15 to 30 years. The property here can be a parcel of land, an apartment unit, or a residential building, which you intend to use, lease or sell in the future. With real estate development financing, you are getting funds for a development project, which comprises two parts: land and building plans.
Take for instance a hotel development project. Once the development project is completed, the aim is to sell all of it and use the proceeds to repay the loan. Now, if you want to retain ownership of certain parts of the hotel real estate development project, your option is to pay in full the development loan and then get a mortgage loan for the part you want to own long-term.
You'll make it certain that the project generates a profit, which you can have in the form of cash or equity in the project. Realizing profit in cash is a fine way of minimizing taxes, but you have to consult existing taxation laws to verify this. Also, don't forget to manage your mortgage loan properly, to assure your continued ownership in the project.
With all this information, it follows that you can tell one type of project from the other and one type of financing form the other. As a refresher, if you plan for property renovation or acquisition that you want to own for the long-term, obtain a mortgage loan. For development projects that you'll eventually sell for a profit, get a development financing.
If you apply for development loan, always remember that you're requesting funds for both land acquisition and building construction. With this in mind, you will need to do some paperwork regarding your development project. Development plans, cost estimates, and feasibility report are just some of the documents you have to prepare for approval.
Don't be like some real estate developers who mistakenly obtained mortgage financing for their development projects. A hotel real estate development project or any other development project for that matter, is best funded with real estate development financing, not mortgage financing. Remember that so you won't have to pay unnecessarily for loan cancellation or refinancing.
You might be in a state of shock if you were told that there's a substantial gap between a development project and a renovation project. Similarly, you might be surprised that long-term mortgage financing may not necessarily work as well as real estate development financing. Each has its own function and purpose. As player in the industry, you might think you know enough of the ins and outs of the trade. But you are about to find out something you've probably never heard about before.
With a mortgage financing, you are acquiring a property for the long-term, say 15 to 30 years. The property here can be a parcel of land, an apartment unit, or a residential building, which you intend to use, lease or sell in the future. With real estate development financing, you are getting funds for a development project, which comprises two parts: land and building plans.
Take for instance a hotel development project. Once the development project is completed, the aim is to sell all of it and use the proceeds to repay the loan. Now, if you want to retain ownership of certain parts of the hotel real estate development project, your option is to pay in full the development loan and then get a mortgage loan for the part you want to own long-term.
You'll make it certain that the project generates a profit, which you can have in the form of cash or equity in the project. Realizing profit in cash is a fine way of minimizing taxes, but you have to consult existing taxation laws to verify this. Also, don't forget to manage your mortgage loan properly, to assure your continued ownership in the project.
With all this information, it follows that you can tell one type of project from the other and one type of financing form the other. As a refresher, if you plan for property renovation or acquisition that you want to own for the long-term, obtain a mortgage loan. For development projects that you'll eventually sell for a profit, get a development financing.
If you apply for development loan, always remember that you're requesting funds for both land acquisition and building construction. With this in mind, you will need to do some paperwork regarding your development project. Development plans, cost estimates, and feasibility report are just some of the documents you have to prepare for approval.
Don't be like some real estate developers who mistakenly obtained mortgage financing for their development projects. A hotel real estate development project or any other development project for that matter, is best funded with real estate development financing, not mortgage financing. Remember that so you won't have to pay unnecessarily for loan cancellation or refinancing.
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