Ground up construction is one of the most complicated yet lucrative types of real estate investing. Unlike fix and flips that have more limitations on what you can realistically renovate or add to the home, new construction projects offer a blank slate that can be built to match the market’s demands. Understanding what styles of home and what amenities are popular with home buyers, as well as the potential price point of the final project, are crucial for maximizing the potential profitability. The struggle that most experienced developers encounter is the same issue most real estate investors encounter: funding their project.
Financing these projects can be difficult for a few reasons. First is the fact that conventional financing is very risk averse, and a new construction loan is typically reserved for people who plan to live in the property rather than sell it for a profit. Traditional financers are also very strict on the type of documentation they require- income verification, W2s, etc. to ensure the borrower’s ability to pay back the loan. To be clear, every lender is going to have their way of ensuring the borrower can pay off their loan, but there are less strict document requirements with private money lenders compared to FHA loans.
Flexibility is severely lacking with traditional financers, as is the speed of closing a deal. For example, many banks could take weeks or even months to finally close a new construction loan, which hurts the competitive possibilities as an investor. Sometimes they want to see such a large down payment that the initial capital requirement is too big of a hurdle to overcome, which hurts the investors potential to even begin their project and could cause them to miss out on a deal. There are often heavy restrictions on what type of build will be approved, limiting the development options and potential exit strategies of the investor. Lacking flexibility in a real estate investment is detrimental to your bottom line since its important to have as many options to recoup your money as possible.
Direct hard money lenders are the best option for real estate investors looking for ground up construction financing. For starters, private money lenders are much more relaxed with what kind of documentation they require to approve a loan. Take Asset Based Lending for example- we look at credit score, current liquidity, previous construction experience, and the actual asset. There’s no income verification, no additional documentation, etc. Private lenders try to keep things as simple and straightforward as possible which reduces the hurdles and headaches that investors encounter when trying to acquire project financing. We focus on the viability of the deal and the actual investor, then we make our assessment.
Another major benefit of using hard money lenders is the direct communication with decision makers. Banks and other financial institutions have their hands tied with what they can lend on, running everything through a pinpoint accurate calculator to assess the risk and profitability. While hard money lenders are certainly doing their own risk calculations, they tend to dive in deeper and understand the full story of the borrower’s project, their experience, and their exit strategy. Maybe the investor has plenty of experience building single-family homes and has a potential deal to build their first multifamily property. A traditional financer is likely to kill the deal because they don’t have the exact proven experience for the project they’re looking to finance. Private money lenders will take your recent experience and expertise into account- does the multifamily build makes sense in that area? Is the scope of work reasonable? Does this investor have enough successful projects in recent years to consider the deal? All these questions are avoided at banks but asked commonly by hard money lenders, which makes some investment deals possible that could never happen with a bank or private institution.
The doc-light approach and flexible underwriting are important factors for choosing a hard money lender, but the number one reason to choose a private lender in today’s market is speed. Traditional financers can take several weeks, sometimes over a month, to close a loan with a prospective borrower. Property sales and land lot sales are moving way too fast for an investor to wait to know if they have a deal or not. Asset Based Lending approves loans in 24 hours so borrowers can immediately find out whether their deal is viable or not. From the first point of contact, ABL averages loan closings in just ten days, making sure the investors we work with are staying as competitive as possible and never losing out on a deal.
ABL offers a scaling rate new construction loan that starts out at 4.99% for the most experienced and qualified borrowers, and then raises half a percent each month up to a cap of 8.99%. This is the kind of hard money construction loan that benefits builders and developers who know their project inside and out- the work needed, the time frame required, having the materials ready to go, etc. The quicker and more efficient you are, the more money you can keep from your successful project. That said, these loans aren’t meant to finance rush job construction- they’re designed for professional projects with
These new construction loans are designed to provide the maximum possible leverage while charging minimal points to the investor. We fund 100% of the construction costs and provide funding within 48 hours of your draw request to ensure your project never experiences a financial delay. One of the biggest problems construction projects run in to are the actual contractors and builders being delayed from not receiving their pay in a timely manner. ABL is an experienced hard money lender and understands that speed of money is how these projects get done smoothly, so our professional draw management team works diligently to keep you funded from start to finish.
Building an entirely new home is a challenge but financing it should be easy. Fund your success with Asset Based Lending hard money new construction loans. With rates construction loan rates starting at 4.99% and loans closing in as little as two days, ABL is the premier option for real estate investors looking to begin their new construction project. Whether you’re looking to build a multifamily rental property in Jersey City NJ or want to invest in ground up construction in Cape Coral FL, our team is ready to discuss your deal and close your loan. Contact us today to have your loan approved as fast as 24 hours by calling 201-584-4174 or email info@abl1.net.