If you are pondering on a real estate development project, you might already be planning to take up a long-term mortgage financing loan. But before you do, stop and think. Your hotel real estate development project doesn't need funding from a mortgage loan, but from a development loan. Really, mortgage is great for building renovation or land acquisition projects, but not for development projects.
You might be in a state of shock if you were told that there's a substantial gap between a development project and a renovation project. Similarly, you might be surprised that long-term mortgage financing may not necessarily work as well as real estate development financing. Each has its own function and purpose. As player in the industry, you might think you know enough of the ins and outs of the trade. But you are about to find out something you've probably never heard about before.
Long-term mortgage financing is designed for acquiring and owning property in the long-term. Any property acquisition can be funded with it -- land, condominium, house, resort and the like. The acquired property is usually owned for years, but may also be rented or sold out. Meanwhile, real estate development financing is designed for acquiring land and constructing buildings. Again, new structures are to be built, not just renovated or remodeled.
With the funds from the development loan, you can then complete the project, sold it and pay back the loan. That's not a very long time really. It could be more than a year, but eventually you will have to let go of the project and give up "ownership". If you want to retain co-ownership, that's the time you apply for a mortgage loan to buy part of the project and own it long-term.
Of course, as a business-minded individual, your goal is to realize a profit. With the use of careful planning, you should be able to realize a profit applied as equity in the investment and to keep your mortgage loan at minimum. Realizing profit in equity form not in cash form is one way of keeping taxes at bay, although not in all cases. Applicable taxation laws are worth checking.
With all this information, it follows that you can tell one type of project from the other and one type of financing form the other. As a refresher, if you plan for property renovation or acquisition that you want to own for the long-term, obtain a mortgage loan. For development projects that you'll eventually sell for a profit, get a development financing.
With real estate development financing, you are not merely asking a financial institution to provide you funds for purchasing any property. You are asking them to help you fund a whole project of buying land and constructing infrastructure. To get approval for the development project loan, you need to have your development plans, costing, and feasibility study approved.
Don't be like some real estate developers who mistakenly obtained mortgage financing for their development projects. A hotel real estate development project or any other development project for that matter, is best funded with real estate development financing, not mortgage financing. Remember that so you won't have to pay unnecessarily for loan cancellation or refinancing.
You might be in a state of shock if you were told that there's a substantial gap between a development project and a renovation project. Similarly, you might be surprised that long-term mortgage financing may not necessarily work as well as real estate development financing. Each has its own function and purpose. As player in the industry, you might think you know enough of the ins and outs of the trade. But you are about to find out something you've probably never heard about before.
Long-term mortgage financing is designed for acquiring and owning property in the long-term. Any property acquisition can be funded with it -- land, condominium, house, resort and the like. The acquired property is usually owned for years, but may also be rented or sold out. Meanwhile, real estate development financing is designed for acquiring land and constructing buildings. Again, new structures are to be built, not just renovated or remodeled.
With the funds from the development loan, you can then complete the project, sold it and pay back the loan. That's not a very long time really. It could be more than a year, but eventually you will have to let go of the project and give up "ownership". If you want to retain co-ownership, that's the time you apply for a mortgage loan to buy part of the project and own it long-term.
Of course, as a business-minded individual, your goal is to realize a profit. With the use of careful planning, you should be able to realize a profit applied as equity in the investment and to keep your mortgage loan at minimum. Realizing profit in equity form not in cash form is one way of keeping taxes at bay, although not in all cases. Applicable taxation laws are worth checking.
With all this information, it follows that you can tell one type of project from the other and one type of financing form the other. As a refresher, if you plan for property renovation or acquisition that you want to own for the long-term, obtain a mortgage loan. For development projects that you'll eventually sell for a profit, get a development financing.
With real estate development financing, you are not merely asking a financial institution to provide you funds for purchasing any property. You are asking them to help you fund a whole project of buying land and constructing infrastructure. To get approval for the development project loan, you need to have your development plans, costing, and feasibility study approved.
Don't be like some real estate developers who mistakenly obtained mortgage financing for their development projects. A hotel real estate development project or any other development project for that matter, is best funded with real estate development financing, not mortgage financing. Remember that so you won't have to pay unnecessarily for loan cancellation or refinancing.
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