Hi, I swung by a property last week, one of a few new construction projects we've recently financed. In all, we have 3x more of this loan product type than at this time last year. So what's going on? A few things at play: Local banks are proceeding cautiously Ground-up construction projects are often financed by regional or community banks. With concerns about deposit outflows, some of these banks are pulling back and are putting less money to work. This creates an opportunity for private lenders, like us, to bridge the gap. Some experienced borrowers are changing strategies Off-market deals from wholesalers are not penciling like they used to. More experienced flippers are turning to ground-up projects to fill the void. This transition isn't for everyone, and we are picky with who we choose to work with. For example, we recently funded the construction of two new townhouses for a first-time builder. But, we know this borrower well, having funded over 40 flips with him over the last several years. Persistent demand for affordable or well-located housing I am seeing no lack of demand for projects in the more affordable range ($300-$500k) and well-located, higher-priced properties ($1.5 million+). These type of new-builds are still selling quickly and are often under contract before completion. We like both these market segments in core, Texas markets at conservative LTVs. Case Study: core Houston new buildHere's an example of how we structured the financing for the 3,750 sqft house in the picture above. We get comfortable with larger projects like this in areas we know well. I've lived in this neighborhood for the last 10 years. We've worked with this builder on several larger flip projects. He's already sold several ground-up projects in this area and sent us a new one yesterday, Our total loan value was $875,000.
With an appraisal at closing of $1.6 million, this was a 55% LTV deal. Not bad. With recent sales comps implying a value of $1.75 million, that makes it a 50% LTV. Even better. While private lenders are going to be more expensive, it might mean the difference between closing and losing out on a deal for the investors. Often overlooked is the speed advantage private lenders have over banks. In addition to closing faster, we often fund draws weeks faster than banks. Our goal is to have the property inspected and funds dispersed within 72 hours of receiving the draw. Investors can continue to pay their team and complete projects more quickly, which ultimately leads to lower holding costs throughout the project's lifespan. |