Condominiums are units, which are registered separately (stratified) and available for sale individually. Retail, office and industrial properties can also fall under this definition.
Base Financing for condo inventory loans typically offers a shorter term, depending upon when the borrower expects to sell the individual units. Floating interest rates typically apply with no amortization requirement.
The sale of individual units is the key consideration for this type of financing. In most cases, the borrower is expected to contribute 100 per cent of the net sale proceeds from each unit sale. As the borrower sells units, the loan is paid down simultaneously until the point of liquidation. Once the loan is liquidated, the borrower is able to keep the profits from the remaining unit sales.
There may be conditions added to the loan such as a pre-sale requirement, which outlines the number of units to be pre-sold prior to funding. In this instance they may reserve the right to approve the purchaser as a viable and legitimate purchaser.