Process to get approved for a Construction Loan & Land Purchase?

[David Coronado]

Hi BP,

I've been buying houses, remodeling them and then selling them in the Bay Area for the past couple of years. I now want to take on new developments, buying a lot, building a new house and then selling it all under my newly formed business llc. I'm trying to understand the process of how to get approved to buy the land and then get approved for the construction loan all under my business llc?

Here is an example of what the finances would look like. I'll use simple yet realistic numbers for those who are not familiar with the Bay Area real estate market, 

Example Business - Real Estate Developer LLC
Lot Price - $1,000,000
House Size - 3,000 Sq Ft
Construction cost per square foot - $500
Construction Cost = #2,445,000
Total cost to Build = $3,445,000

Sell Price = $4,500,000 
Average square foot per area (Palo Alto and Mountain View) - $1,500

Construction Cost Breakdown

Construction Cost @ $500 a square foot	$1,500,000
Contractor Fee 10% of construction cost	$150,000
Civil, Mechanical, Electrical and Structural Engineering & Architect Fee 30% of construction cost	$450,000
Permit Cost 1% of Home total value	$45,000
Site Work & Landscape 10% of construction cost	$150,000
Contingency 10% of construction cost	$150,000

Land Purchase Breakdown

Downpayment 20%	$200,000
18 Month Mortgage Payments	$95,000

I know the land purchase will require a 20% downpayment ($200,000) and the construction loan will also require a 20% downpayment ($489,000). Then it will take about 18 months for the city to approve and finish construction from the date of the purchase, so I will need $95,000 to cover the mortgage payment, insurance and the property taxes of the 18 months.

Investment - $784,000


I have the cash in hand now and I am curious about how to get approved for the land purchase and the construction loan all under my business llc. In the past I've been buying the homes in my name and using my income to get approved for the purchase. How can my business llc get approved for the land purchase and the construction loan?

-David

[Karen Margrave]

Though you can buy the land and hold title in your LLC, most lenders are going to require that you personally guarantee

the loans. Also, are you a Licensed General Contractor? If not, the lender or the City may require that you have one. 

The first place to start is with your bank. Ask if they do construction loans on spec new construction. If not, ask if they know of anyone that does. Then if that gets you nowhere, do a search for it. There's a site Scotsmanguide that has a matrix with different lenders you can try, or just google construction loans with city name, etc.  Be sure to verify information and check references, licensing, etc. as you would normally do.  You might look at Seattle Funding. However; I would not use the FMC that is in S.F. as I know someone that used them and it was a problem. Good luck.