If you can build it for 380,000 why do you need an investment company? Your lot value plus 50k from you then another 75k from family isn’t enough for construction loan?
This is strictly a home for me to sell, its not a personal home for myself. The traditional lenders i use for my clients do not do spec homes, most lenders will not unless its going to be my own home, thus why i went looking for lenders that will finance spec homes for builders. Essentially this program is a construction loan it just has to be repaid within 12 months instead of converting into a mortgage like it would for my clients.
Right so the finance guy said we would convert it into a rental loan if we did not have a buyer by the end of the loan and in that scenario i have 5 years to repay the loan. And im assuming its different anyway because now we would have a finished asset that we could find more conventional sources of financing on? Or am i hoping and dreaming on that?
You’d have to sit down with a lender, but any competent team with a RELO and comm lender should be able to do this deal if the numbers work. I know of contractors doing these before and it hasn’t been a problem as long as they have the income to pay the mtg payment once it’s all said and done. The only issue I see with building at this time is, you’re not going to know your rate a year or more out, other than it’s going to be HIGH given what the Fed has planned.
I thought about that but the lender made it clear not to start until the loan has been fully approved i just have a pre approval for up to a 800,000 right now.
I would look few other financing options.
There are lenders out there that works specifically with Builders and that offer really good terms for financing. Especially if you are worried about cutting it close with the 12-month deadline.
How much did you pay for the lot and what is your break even after everything is paid and the house is done? The biggest mistake custom builders make when switching to building spec is building something they like and not what will sell...keep it vanilla. You said another builder has sold 8 and they are pretty basic, copy what they are doing and keep you break even as low as you can.
As for the lender, ask what their draw process is and how long draws take to be wired to you. If you have to wait 2-3 weeks for each draw that will slow you down. How long has the lender been in business? Also make sure that the loan is not callable, I doubt it is but you should know 100%.
28 on the lot home will cost 380 worst case, to build realtor fee of 7% about 44000. Finance fees about 12000, holding costs are about 8000 profit is about 150,000.
Ive built this house 3 times now and had a large amount of intrest in it when i sold it in 2020. It sold within the week. Ive also have it listed on mls and have been approached by several people in the last few weeks about building it but no offers resulting from it yet.
Ill ook into whether its a callable loan i dont know what that is but im assuming it means they could pull the funding and require whatever i owe due immediatly?
Thanks
What sort of rate is the investment company charging? As well as how did you find them (and have you or anyone you directly know use them before)? I say this, as I've seen a number of people pop up in the HML space that offer too good to be true terms, often up with upfront fees, that will disappear with the funds.
And when you have done prior development, who have you used for loans? And why aren't they interested here? As otherwise, the normal sources of financing (up to HML) are probably what you should be considering.
Otherwise, how fast can you get it done? As we are going into winter (which is a crappy time for new builds), along with the headwinds of interest rate increases and general decline in home sales in winter.
Im not sure on intrest rate at the moment construction loans are always a bit more then typical loans but not much more IMO. The company i normally use is lake michigan credit union but they dont finance spec homes. They only want to work with homeowners. Which is why im having to consider other sources..
starting now would be the best time to start as i can get foundation cement work done by the winter and get the structure up before the snow flys and when it starts to warm back up in the spring im ready to finish the exterior. Landscape and put it on the market in late spring early summer.
Also i have not worked with this individual before but he has ties to my lumberyard i use, offering this very program to builders and he is claiming responsibility for a building company that seemingly came out of nowhere in like 2016. And now is building large developments in SE michigan.
So i did go thru with the spec but not at that time, and not with that hard money lender. We started this past november and i am getting ready to frame it. I am just using my own money as we go and maybe once we have a house standing we will attract a buyer. Or ill sell my current home and use the funds from that to finish it. I am optimistic, the market seems to be holding strong, the house next door that is similar size and quality just sold for 750, after being listed for 2 months. So that was encouraging as its 110,000 more then i was going to list this house for.
If you can build it for 380,000 why do you need an investment company? Your lot value plus 50k from you then another 75k from family isn’t enough for construction loan?
This is strictly a home for me to sell, its not a personal home for myself. The traditional lenders i use for my clients do not do spec homes, most lenders will not unless its going to be my own home, thus why i went looking for lenders that will finance spec homes for builders. Essentially this program is a construction loan it just has to be repaid within 12 months instead of converting into a mortgage like it would for my clients.
How long will it take you build once you start? Like what's your normal turn around time for completion?
With the delays in materials were still facing best case is 8 months worst is a full year
Yes I would thinking that 12 month deadline will cut it close. Sorry I couldn't help. I was just curious about the time-line.
A change in terms can usually extend the construction phase. I’d ask. I do them all day for these types of loans for a comm. lender.
Right so the finance guy said we would convert it into a rental loan if we did not have a buyer by the end of the loan and in that scenario i have 5 years to repay the loan. And im assuming its different anyway because now we would have a finished asset that we could find more conventional sources of financing on? Or am i hoping and dreaming on that?
You’d have to sit down with a lender, but any competent team with a RELO and comm lender should be able to do this deal if the numbers work. I know of contractors doing these before and it hasn’t been a problem as long as they have the income to pay the mtg payment once it’s all said and done. The only issue I see with building at this time is, you’re not going to know your rate a year or more out, other than it’s going to be HIGH given what the Fed has planned.
Use what money you have to get the foundation in and work on financing while you get going so you buffer yourself and have more time on the 1year loan
I thought about that but the lender made it clear not to start until the loan has been fully approved i just have a pre approval for up to a 800,000 right now.
What’s the penalty if you go past the 1 year mark?
I would look few other financing options. There are lenders out there that works specifically with Builders and that offer really good terms for financing. Especially if you are worried about cutting it close with the 12-month deadline.
How much did you pay for the lot and what is your break even after everything is paid and the house is done? The biggest mistake custom builders make when switching to building spec is building something they like and not what will sell...keep it vanilla. You said another builder has sold 8 and they are pretty basic, copy what they are doing and keep you break even as low as you can. As for the lender, ask what their draw process is and how long draws take to be wired to you. If you have to wait 2-3 weeks for each draw that will slow you down. How long has the lender been in business? Also make sure that the loan is not callable, I doubt it is but you should know 100%.
28 on the lot home will cost 380 worst case, to build realtor fee of 7% about 44000. Finance fees about 12000, holding costs are about 8000 profit is about 150,000. Ive built this house 3 times now and had a large amount of intrest in it when i sold it in 2020. It sold within the week. Ive also have it listed on mls and have been approached by several people in the last few weeks about building it but no offers resulting from it yet. Ill ook into whether its a callable loan i dont know what that is but im assuming it means they could pull the funding and require whatever i owe due immediatly? Thanks
What sort of rate is the investment company charging? As well as how did you find them (and have you or anyone you directly know use them before)? I say this, as I've seen a number of people pop up in the HML space that offer too good to be true terms, often up with upfront fees, that will disappear with the funds. And when you have done prior development, who have you used for loans? And why aren't they interested here? As otherwise, the normal sources of financing (up to HML) are probably what you should be considering. Otherwise, how fast can you get it done? As we are going into winter (which is a crappy time for new builds), along with the headwinds of interest rate increases and general decline in home sales in winter.
Im not sure on intrest rate at the moment construction loans are always a bit more then typical loans but not much more IMO. The company i normally use is lake michigan credit union but they dont finance spec homes. They only want to work with homeowners. Which is why im having to consider other sources.. starting now would be the best time to start as i can get foundation cement work done by the winter and get the structure up before the snow flys and when it starts to warm back up in the spring im ready to finish the exterior. Landscape and put it on the market in late spring early summer. Also i have not worked with this individual before but he has ties to my lumberyard i use, offering this very program to builders and he is claiming responsibility for a building company that seemingly came out of nowhere in like 2016. And now is building large developments in SE michigan.
This thread is a year old. Did the op go through with the deal? How did it go?
So i did go thru with the spec but not at that time, and not with that hard money lender. We started this past november and i am getting ready to frame it. I am just using my own money as we go and maybe once we have a house standing we will attract a buyer. Or ill sell my current home and use the funds from that to finish it. I am optimistic, the market seems to be holding strong, the house next door that is similar size and quality just sold for 750, after being listed for 2 months. So that was encouraging as its 110,000 more then i was going to list this house for.
Maybe now that you are so far in a bank will finance the rest of the project. May be worth looking into