What is a Take-Out Loan?
A take-out loan is a loan.that replaces another
How Does a Take-Out Loan Work?
Let's say Company XYZ is adevelopment company. It owns a piece of land at a busy intersection and decides to build a huge apartment complex on the site.
Company XYZ first gets a $5 million construction loan from Bank A, which Company XYZ uses to pay the general contractor and all the associated expenses of constructing an apartment building. The loan must be repaid in 18 months, at the estimated completion of the construction. Because the collateral -- the construction site -- isn't worth much until it becomes a fully rented and operating apartment building, Bank A charges 9% on the loan.
After the apartment building is finished, Company XYZ gets a $5 million mortgage from a take-out , Bank B. This loan has a 30-year , is collateralized by a fully functioning apartment building, and has a 5% interest rate. Company XYZ uses Bank B's loan to pay off -- or take out -- Bank A's loan.
Why Does a Take-Out Loan Matter?
Take-out loans are long-term real property. The real difference between them and any other , however, is that take-out usually want interest payments as well as a portion of any on the when it is eventually sold. In our example, if Company XYZ sells the apartment building, it might have to give Bank B a percentage of the difference between the construction cost and the price. In some cases, the take-out might want a cut of the produced by the (in our example, the rents)., usually on
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
There's a reason why you hire a real estate agent -- they're experts at selling homes! They...Read More →
As an investor I do not make decisions based on "gut" feelings. To me, anyone who invests or "trades" in that manner is destined for poor results. If you're willing to invest on nothing more than...Read More →
The world of investing is large, complex, and intimidating. But many of those convoluted formulas...Read More →
Warren Buffett is one of the few investors who has achieved truly cult-like status. Fondly...Read More →