NEW CONSTRUCTION LOANS:

New Construction projects are predominantly viewed as the most pinnacle endeavors in the realm of Real Estate investing. The Investor engaging in New Construction has the opportunity to introduce innovative designs, modern amenities, and even incorporate more energy-efficient features that cater to preserving our precious environment, as New construction provides the Investor with an unparalleled control over the entire development process. From selecting the location and design, to overseeing even the smallest details of Construction, the Investor has the ability to shape every aspect of the project according to their own vision and desires, and the market’s demands.

Having a good understanding the viability of the Construction project is also paramount. Investors must gather comprehensive details about the proposed project, including the current value of the Land, a detailed Scope of Work outlining the specific Construction costs, the costs of the Permits and Drawings, the anticipated value of the completed project, and a realistic timeline for each item in your cost estimation. This meticulous assessment not only aids in determining funding needs but also facilitates effective project screening, enabling Developers to craft a sound investment strategy. A clear and detailed overview ensures that the New Construction project is not only well-managed but also poised for profitability.

THE BREAKDOWN…

A New Construction Loan serves as an extremely valuable tool for the Investor developing Residential Property as these Loans are specifically designed to cater to the needs of those seeking to acquire raw Land, build a new structure, and ultimately profit from the sale or rental of the completed Property. A New Construction Loan is a short-term solution, (12-18 Months), that you can use to buy the Land and build, or simply build on a property that you already own. You can expect to bring at least 10% of the Purchase Price to Closing, but if you already own Land, you can potentially use the Property as collateral which will often create a “No-Money Down” scenario. The maximum Loan amount that you will get is up to 75% of the After-Repaired Value, or “ARV”.

With New Construction, having a plan is great but having flexibility is way better! New Construction projects are notorious for delays so be sure to leave a little wiggle room in your budget and timeline.

FIRST THINGS FIRST…

Before diving into a new construction project, aspiring Developers are advised to conduct a thorough self-assessment. This evaluation includes gauging your experience in Property development, assessing the amount of capital that you have available, and checking your personal credit ratings. These factors not only influence your eligibility for a New Construction Loan but also dictate the associated Terms of the Loan. Novice Developers often find themselves relying more on personal credit and cash to secure financing, while seasoned professionals can leverage their development expertise to negotiate more favorable Loan Terms.