BTR LOAN LTC CALCULATION

[Kevin T.]

Hi, I have a question regarding financing on a BTR project I am working on. How does land value affect LTC calculations? Here is the scenario:

We own a piece of entitled land (free and clear no financing on the land) that is worth $4,000,000

It will cost (vertical, site work, fees) $15,000,000 to build our project.

Let's say a lender will lend 65% LTC. Will they consider the $4mm as cost?

For example:

65% of $19mm ($15mm+$4mm) is $12,350,000

OR

65% of $15mm is $9,750,000, and then can we give them the $4mm land as security/equity and not come up with out of pocket money?

Any help is appreciated.

[Nick Belsky]

@Kevin T.

This is a very lender specific question.

Free and Clear land is usually considered in one of 3 ways:

Lender will give you a percentage of its value towards closing costs (usually 12 months seasoned).  The percentage ranges from 50-100% from my experience.  It is treated like cash out at closing that is applied to your costs to reduce them.  I've seen this method result in actual cash back in the borrower's pocket at closing for a new construction.  

Lender will use either the cost of the land or the current value (based on seasoning period) and add that as cost to your total cost numbers.  That way helps your LTARV get lower and can help you get a higher LTC as well.  Depends on how they work their numbers.

Lastly, they give you ZERO credit for it. Seen this a few times lately. The value of the land is intrinsically included in the appraised ARV and that's all they will allow. Don't recommend this method as you literally get nothing out of it.

Each lender has their own approach.  When shopping be sure to ask this question so you can get the most of out of your equity and keep as much cash in your pocket as you can!

Cheers!