Sometimes entrepreneurs find it difficult to get initial financing that will allow them to start a real estate project A short-term bridging loan can solve the problem
There are many stories in which the entrepreneur lacked the same divorce to the pound in order to succeed and try. The same divorce is usually the initial capital needed to launch one or the other venture. Finding the right idea or the right asset to make it a valuable product is sometimes the easier task. Especially when it comes to an entrepreneur at the outset, without many financial means, the real challenge is to obtain the initial funding that will enable the acquisition of the property which is actually a means that will lead us to the goal.
In order to achieve the same divorced divorce, we will need a loan, known as a bridging loan financing. It is, in fact, a short-term loan in the range of a few months to two years, aimed at solving a point of financing problem, until a fixed loan or long-term solution is obtained. In real estate, bridging loans in many cases are given on land before they actually become a real estate project.
The bank prefers to wait
A representative example of a real estate opportunity that requires a quick financing solution is an option. Many real estate transactions are made by a conditional purchase, ie the property owner gives the prospective buyer a limited period of time during which he can purchase the property. In fact, the owner gives the buyer an option for exclusive payment for an agreed period. If the option is exercised, the price paid by the buyer will be deducted from the price of the property but if the option is not exercised, the amount of the option will be forfeited. Such an option is not only available in the private market, even in Israeli Land Authority (RMI) auctions, the winner of the tender has to pay the full amount of land he has offered within 180 days. Hence, the initial guarantee deposited with his bid is, in effect, an option he pays to the state. For the right to purchase the land.
Now that the developer has purchased the option, he embarks on a time-consuming journey to obtain financing and fulfillment. Apparently, this is not such an easy task. This is because even if this is a land with great potential for realization in order to realize the entrepreneur need a relatively short period of time and funding, banks are reluctant to grant such a mediation loan especially when it comes to small entrepreneurs.
In many cases, the banks prefer to wait until they know exactly what they have in hand, that is, wait until the same developer secures the land and make it available and with building permits and then offer him a full escort to the real estate project on it. Even in cases where the bank will consider granting a loan to purchase The ground, sometimes, will not come to fruition, as the time component is critical and there are times when the procedure is not appropriate for the bank’s loan approval procedures.
Return on investment
For the entrepreneur who has difficulty obtaining bank financing for land, in recent years, non-bank alternatives have emerged. The bridging loans are some of the common products provided by real estate financing companies operating in Israel. These are more open to small entrepreneurs when it comes to lending. Interest rate investment.
In most cases, the funding will amount to a maximum of 60% of the valuation on land assessed by a qualified assessor. For the fund, the risk is relatively hedged, since since it is a short-term loan, it is unlikely that its value has dropped suddenly by tens of percent. All the more so when the value of the land is to be expressed following the improvement the developer is planning.
As mentioned, the life of the mediation loan does not exceed two years. This is because they are usually small entrepreneurs who buy land and large assets, so the preparation time for land is not long. Once the developer does successfully upgrade the land to a state of immediate availability for construction, it becomes more attractive to the banks, so it is likely that if they offer the developer full financing and assistance, some of which will regulate repayment of the mediation loan to the fund.