Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
So small banks pretty much all appear to be lending again in Austin. Their regulators all want them to limit spec loans to one though. Some of the more aggressive lenders will do 2 and send their overflow business to some of their small lender buddies that will use their same underwriting.
Is anyone doing something else creative to find cheap construction money currently? What have you found that is effective?
Are you using equity to finance your land development currently or are you finding other debt alternatives?
Can you tell me what is the 'general' equity outlay % you've seen recently for spec-home construction/major flip projects in established neighborhoods?
Is it 20%-30% like home-buying or much more?
If someone sought to put down, say, 50% of total project budget costs, would lenders normally consider this level very favorable to make a loan? ...or does it always depend on the property/project?
Unfortunately it's cash over here for the cheap money. Some small banks are willing to lend on spec again, but most are not and our landscape looks nothing like Austin when it comes to new construction. Looking forward to hearing some of the responses to this thread.
Clay W. Most of the lenders i've dealt with want at least 30% hard equity. 6% interest only during construction. Terms are actually pretty reasonable when you can find a bank who is willing to lend on spec.
My what a difference a year makes! We have banks calling US to loan us money constantly now.
If the project has large margins many of my local lenders will loan all the way up to 85% LTC. The LTC is generally our constraint since our gross margins are roughly 30-40%. There is a LTV number too, but this never matters for our projects.
80% LTC is pretty easy to find if you know which lenders to talk to. There are 4-5 main small lenders locally that are the best. I had to call over a hundred banks to find them though.
Are the banks in Austin including land cost in your LTC or are you paying cash for dirt / tear downs and then getting 80-85% on your hard construction costs?
Yes....the dirt is a big portion of our overall project cost and thus it gets counted. We generally purchase the dirt and there is enough security interest for the lender to advance the first part of the construction funding.
We don't plan games with the "cost" number either. We have down-selected lenders to only use those that account for all project costs less the interest carry in the "cost" calculation, are able to advance construction funds such that their security interest is not impaired, and are willing to close construction loans prior to permits being issued so that we can start building the day we get permits.