The amount that the lender is willing to lend is then a function of two criteria: the future value of the proposed project and the “equity position”. Generally speaking for an investment property (one to be held as a rental) the maximum loan to value is 5% less than the lender would make for an existing property. So if the maximum loan to value for an existing apartment building is 80%, the maximum total construction loan would be 75%. Units built for resale (say a condominium project) will have values adjusted based upon the value at completion (also know as bulk sale value) compared with final retail values. Here one must consider the time and the cost of sale of the units. Then with regard to the “equity position” (the second criteria) the lender would like to see the developer contribute a minimum of 15 to 20% of the entire cost of the project. The entire cost of the project includes the cost of the land; all “Soft Costs” such as fees, permits, engineering, architect, loan fees, interest reserves, reports and inspections; plus all of the “Hard Costs” which cover all items needed to complete the physical construction of the project. Hopefully you have addressed all related issues about the project while completing your own due diligence and your plan will be enormously successful from start to finish. I would like to work with you on your next investment and development project. So please give me a call for a “no cost” consultation and we can discuss the next step in moving your project forward. A Few Helpful Forms Preliminary Construction Loan Inquiry Contact Information T Budd Fletcher
Development Financing (continued)
A final area of concern is Feasibility and Marketability. Before you commit to a project you should determine that the project make economic sense.
Some things to consider:
* Do you have adequate reserves?
* What are the competing projects?
* Is there a justifiable profit incentive?
* What are the results your market study and what is the schedule?
* Are there added costs for building during certain times of the year?
* Does the local municipality have special bonding requirements?
* How long does the permitting process take in your area?
Construction Loan Checklist
Bridge Capital CRES
425 Capitola Ave #4
Capitola, CA 95010