Never Rely on Too Little Debt on a Construction Project

This financially strong real estate investor never thought he’d have to use a hard money lender on a particular deal. He had used hard money in the past to finance his real estate investments. But his newest deal, a spec construction project in a highly sought after market, would devour all of his cash putting both the project and his livelihood at risk.

After months of constant delays coupled with large budget overruns, this real estate investor was in a tight spot. He had taken out too small a bank loan at the outset of the project when acquiring the lot. This was his biggest mistake. The lesson learned: Never start out with too little debt on a construction project, as it’s extremely difficult to source additional debt once liens are in place. Once a construction project commences, mechanics liens in particular can be a pesky problem. In some circumstances, title companies cannot even issue title insurance on a property once the construction has begun. Has anyone here ever had an experience with this? Please share.

Posted by Corey Curwick Dutton, Hard Money Lender