As a real estate developer or investor, you're probably very familiar with long-term mortgage financing. Perhaps, you've been funding your real estate projects with it. But truth be told, mortgage financing is actually applied to renovation projects, not development projects, such as hotel real estate development or resort 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.
When you want to buy and own a land or building for the long-term, what you need is a long-term mortgage to finance your plan. Mortgage is great for buying land, apartment, house and whatever property you want to own for many years to come. However, when you want to set out for hotel real estate development, which involves buying a land and constructing structures on it, you need real estate development financing.
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.
The development project should generate a substantial profit. Ideally, you should have it realized in the form of equity, not cash, to stave off hefty taxations. However, the success of this tactic depends on taxation laws governing your locality. You should also maintain your mortgage loan at a manageable level; keep it at minimum and make regular repayments. That's the only way to make sure you retain ownership of the project you so dearly labored for.
By now you should understand that real estate development is one thing and real estate renovation is another. But more importantly, you should understand that mortgage financing isn't the best funding for real estate development projects.
With real estate development financing, you are not merely asking a financial institution to provide you funds for purchasing any property. You are asking them to help you fund a whole project of buying land and constructing infrastructure. To get approval for the development project loan, you need to have your development plans, costing, and feasibility study approved.
Many real estate developers make the mistake of finding and purchasing land first, and applying for mortgage financing later for the building construction. Sadly, they are likely to end up compelled to cancel the mortgage and acquire the right funds for a hotel real estate development or whatever development project they are planning to do. In the process, they waste precious time and money.
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.
When you want to buy and own a land or building for the long-term, what you need is a long-term mortgage to finance your plan. Mortgage is great for buying land, apartment, house and whatever property you want to own for many years to come. However, when you want to set out for hotel real estate development, which involves buying a land and constructing structures on it, you need real estate development financing.
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.
The development project should generate a substantial profit. Ideally, you should have it realized in the form of equity, not cash, to stave off hefty taxations. However, the success of this tactic depends on taxation laws governing your locality. You should also maintain your mortgage loan at a manageable level; keep it at minimum and make regular repayments. That's the only way to make sure you retain ownership of the project you so dearly labored for.
By now you should understand that real estate development is one thing and real estate renovation is another. But more importantly, you should understand that mortgage financing isn't the best funding for real estate development projects.
With real estate development financing, you are not merely asking a financial institution to provide you funds for purchasing any property. You are asking them to help you fund a whole project of buying land and constructing infrastructure. To get approval for the development project loan, you need to have your development plans, costing, and feasibility study approved.
Many real estate developers make the mistake of finding and purchasing land first, and applying for mortgage financing later for the building construction. Sadly, they are likely to end up compelled to cancel the mortgage and acquire the right funds for a hotel real estate development or whatever development project they are planning to do. In the process, they waste precious time and money.
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