All Forum Posts by: Eric Franzen

Thanks for the input, guys. 

As for buying above appraised value, my understanding is that it's common for development land, since for a traditional bank mortgage they require the appraisal to be on the current value of the property, not its potential value after development (or so I was told by my mortgage broker). That's why I decided to go with a private loan — I probably wouldn't have been able to get a good LTV on a bank loan. (That said, the current cap with the rental income on the cottage is still around 5.7% — not too bad for this area!)

Does anyone have experience using subordinated and preferred debt? A commercial lender that will be making the construction loan just wants to be sure they are first in line if things go sideways — seems to me that making the construction loan the preferred loan and the land loan a subordinated loan would satisfy that requirement. Along the same lines, if the private loan were unsecured (not collateralized by the property at all), couldn't I still use the property as equity against the construction loan?

My thinking is to structure the private loan to have interest-only monthly payments at ~3.04% APR (the IRS AFR for mid-term loans) with a balloon payment of the principal at 9 years (the maximum length for mid-term loans, as defined by the IRS) and no pre-payment penalty.

Thoughts, suggestions, concerns? I'd appreciate any additional perspectives!

Hi all,

I've been reading the forums for a while now, but this is my first post. I'm turning to y'all because I have looked around on BP and online and haven't found quite the scenario I'm looking for. Hopefully you can help!

I am going to be buying a single-family house on a large multifamily-zoned lot using 100% cash from a relative. The plan is to use third-party private money for the purchase because the property likely won't appraise close enough to the $275k purchase price to make a conventional loan pencil out very well; that will also allow me to save my own money to pay for design and permitting to redevelop the land.

My question is around how best to structure the $275k infusion. The simplest option seems to be a direct personal loan to me (with favorable terms, of course) that I could turn around and use in what would effectively be an all-cash transaction—as far as anyone outside the family is concerned. But my concern is how this will affect my ability to get a construction loan later on if the land loan is on the books as debt.

Does anyone know if/how a private loan (a demand loan, NOT a mortgage) appears on paper to a lender? Are there any tricks or alternative structures that would be better to use to buy property for a development project? Are there ways to structure the money as an equity contribution without actually giving up a big chunk of the project to my private lender?

Thanks in advance for the help! And please also let me know of any other posts or additional research sources that might be helpful to consult.