Acquisition and Development Loans are a type of loan given in order to purchase raw land and prepare it into construction ready building sites.
In order to make the land suitable for homes or commercial properties, the builder makes various improvements – called horizontal improvements – that make the land suitable for future building, such as grading and leveling the land, or installing sewer, water, and electric lines.
If you’ve found an area where market conditions make it likely that construction-ready land can be easily turned into commercial or condo pads, then it’s worth it to try for an AD&C loan, which can cover as much as 70% of the costs, if you put down 30% cash.
Don’t complain about having to give more documents to your lender.
Yes, the whole document thing is unbelievably frustrating. And of course, no matter how many you give, you know the minute you bring in that fat folder that they’re going to ask you for more.
Instead of being obnoxious about it, however, look it as an additional opportunity to prove you deserve a loan. In fact, you should go one step further, and try and give even more documents than they ask for!
Give them more than they ask for
Why would you do this? And how do you do it?
First of all, the why.
The reason the bank asks for the amount of information it does is so they can determine how much of a risk your company is.
On the other hand, the documents they request might not always showcase your company’s greatest strengths. By giving more documents than the bank asks for, you’re essentially answering their doubts – positively – before they even get a chance to ask them. Furthermore, when you add documents that showcase your strong points, you get the chance to prove your company is worth lending to.
The “how” of this equation is pretty simple.
Focus on an area that you excel in, and provide documentation showcasing it. For example, if you excel in staying on cost, show stats from previous building projects to prove you were able to accurately estimate the project and keep it within the budget. If you excel in turning over parcels of land for a handsome profit, show the numbers on those deals.
You should also use this opportunity to make sure your lender knows everything about your company, and the land you’d like to purchase. Yes, they’ll be getting your interest, so the lender benefits too, but you still have to sell the lender on risking their business on your company – especially since AD&C loans are one of the most lucrative, yet risky, types of construction loans.
In order to do this, think beyond the fancy heavyweight paper and leather binder. Instead, provide not only a brief description of your company and its mission statement, but add pictures of staff (not just executives – showing an “average person” humanizes your company), before and after pictures of other land you’ve improved, and even video if you can pull it off.
What difference would it make if you turned some of those documents into a snazzy presentation, and then handed your lender a tablet with the presentation loaded and ready to play?
Do what your lender tells you, but do whatever extra you can to make your presentation stand out from the crowd in a positive way.
Build a good relationship with your lender
It never hurts to be extra nice to your lender.
Not obsequious, of course. But just as you would treat a VIP customer differently, so should you treat the lender as a relationship you’d like to have for the long term. You can do that in a lot of ways, some of which – hopefully- you already know, but one effective way that not everyone thinks of is by making sure you go to the same lender, and even the same person within the institution if you’re not using a hard money lender, every time someone needs a loan.
Now of course that doesn’t mean that you should approach the same lender for another loan if you have 3 outstanding ones. However, it does leave you free to recommend other reliable prospects, or that you can get a construction or mortgage loan from the same lender.
And last but not least, never hide things from your lender.
If you see things are running behind, let your lender know so you can brainstorm a solution together. No one appreciates hearing things at the last minute, even if its something that they could have anticipated.