More about financing

So I spoke to a different mortgage broker today. Here is what he had to say:

Cottages fall into a different class than a regular single family home owner occupied, cottages are a market called "vacation homes or secondary homes" and given their remote locations, the industry in general are very conservative in loan to values.

A typical structure for this type of development is 50% LTV of the finished value, which is being advanced as per different stages of the project. Usually is foundation, Structure, Interior and Finishes. And usually as you said, you need cash on hand in order to get the contractors started, then they deliver the work and then they an appraiser comes to review the work and based on progress you get the respective amount of money corresponding to the phase.

Please note that you must own  at least 70-80% of the land (lot), so the lender can advance something based on the construction permits granted and the plans approved by municipality and a budge prepared by your contractor.

Please note that construction loans are usually 10-14% per yr. (12% in average) simple interest fully open mortgages, with 2% lender fee and 2% broker fee.

Not so great news, but it's still doable. Just need to figure out where to get more money.

Searching for land

So I spoke with the Realtor (Richard) who has some unlisted ready to build on lots (hydro, well, septic is already in). As expected he spoke of anything but this (not listed, no commission to him).

Interesting things he mentioned: it's much harder to develop waterfronts these days. Just one of the things - if lake has ever been used by Indians you have to do archaeological survey. That is when someone has to dive in and search entire shoreline for artifacts. It took 7 years for some one he knew to develop a lot. And deep pockets of course.

Not to be discourage! One thing I learned is that any ones example can be presented in a defining way. Not necessary, however, it is true for everyone. And as my partner said, if we look for a lot with one building on it (and separate into 5) it will probably not need this.

Good news, $300k I mentioned as lot price seams to be very realistic. Judy and him will prepare a list of few listings and I will go see it next week.

Weeds will not be visible this time of the year but leaves are down and we can see entire area.

Steps that were taken prior to me opening this blog

October 24, 2014

Spent entire day at the Cottage show. Got lots of contacts. I must say all developers seams to be the same.  You just need to figure out if you want log house or traditional wood frame.

All development prices are $220-$250 sq.ft. and all have contractors who will manage project for 10-15%. This is for all-in. Frames (like log frame) usually go for $70-$100 sq.ft. and then you need about $1500-5000 upfront for the designer's work (applied to the cost of construction). Most of them customize your house. They do typical projects, but everyone always wants something different. 

Have to think about that. On one had we want to save money, but on another, a million dollar house needs something unique.

Got some local real estate agents contacts. This would be an area to start with. Local view might be different from my analyses.

October 30, 2014
Were contacted by Judy, Realtor in Kawartha area. She will prepare some information for me about possible lots for sale (let's see how much they can be) and also some sales so I can understand how much we can sell our babies for.

November 1, 2014

Spoke with my mortgage broker about a mortgage for construction. Looks like we will be able to finance up to 75% LTV, which is great because our budget look like this:

• Land $200-300K (this is for a lot that will have up to 5 houses) - $60K per house
• Construction $250 x 2000 sq.ft. = $500K
• Sell for -$1 000K
• RE commission $60K
• Cost of borrowing $500K x 15% x 2 years = $150K

Expected income $230K per house. and again we can borrow up to $750K. Financing is done in 4 stages as construction progresses. Appraisal after each stage $400 and legal fees $1000

Am I missing something or is it too good to be true? Why not everyone is doing this?

November 5, 2014

OK, I got why not everyone is doing this. Yes you can get financing for 75% LTV, but the trick is you have to build, pay for it and then bank will reimburse you.

November 9, 2014
Judy called. She haven't provided me with anything yet, but looks like there some properties, not listed yet. Wells, hydro and septic are in and severance will be completed shortly. No details were provided, she just suggested I talked to seller's agent.