A borrower owns raw land and wants to build a duplex, but banks won't finance it because raw land generates no income and is risky to foreclose on. A private-equity construction loan using the land as collateral, then refinancing into a DSCR loan once the duplex generates income, solves the problem.
Hey, so I've got this piece of land in a fantastic location and I want to build a duplex on it. And I've talked to a couple of different banks about it, but every one of them telling me no. You know why that is?
Yeah. So with banks, they're really, really picky. They, you know, raw land isn't producing any income. They want to see a structure on it. They want to see an asset. You can't really foreclose on land. So this really is not in their wheelhouse.
Even though I own it free and clear, doesn't that count for anything?
Absolutely. Sure does. Because that means you've got equity already built into the project, but the The challenge is, is that construction loans require different stages of funding, progressive inspections. You need kind of lots of reserves in case something goes wrong. And for banks, this is just really sticky, and they just don't like tying up that money that long with the risk of something going wrong.
Okay, so what are my options?
So the good thing is, is that you can work with somebody, a private equity lender like us, who deals in investment properties all day long. This is our forte. This is in our wheelhouse. What we would do is set you up on a construction loan using the land as as your upfront collateral. Once you got the construction done, refinance you right into a long-term DSCR loan.
So basically what you're saying is I gotta build it first, prove it's possible, and then the banks will line up then?
Pretty much. Once you have a proven history of an asset and income, then you got something that banks, you know, will entertain. The good news with us is we already see that.
Cool, let's run some numbers.
Okay. All right, man, have a great day.
