Seeking Lender Insight on New Construction

[Jesse Tanner]

Closing a new construction loan soon in Atlanta and I'm looking for insight as a HM lender on a new construction deal. Our company has lent on several fix and flip deals but our experience with new construction is limited.  Specifically, what is reasonably fair on the draw schedule and hold back percentage per draw? Any other wisdom on how to treat the deal differently from a lender's perspective. I'd also like to hear builder/borrower's perspective as well. 

[Mike Wood]

@Manolo D.Prior to starting my first project, I first called around to local banks to see which ones would do construction loans on 2 family houses that were intended to be investment properties. Previous to starting these investment builds, we had done one construction loan on our personal residence, so I was familiar with the general construction loan process. After calling around, I found two (2) local banks that would do construction loans on duplex houses for investment.  I sat down with each bank to discuss how the process would work and some of the big picture things like terms and downpayment/equity required.  I ended up choosing the bank that I did simply because they had more experience doing these types of deals.  
With my bank figured out, I set out to purchase my land.  I did this with available cash. Once I had secured the land, I started finalizing the building plans and working with my GC on the construction costs.  Once the building plans and the build cost were finalized, I brought these to the bank, along with proof that we owned the land, and the typical loan application process to show that we had the required income and capital to complete the project.  For me, both the bank and I were very transparent in the process.  They were interested in the deal, and I wanted to get it done.

They proceeded to get the project valued using a pre-construction appraisal (which indicated positive equity of about 10% on our first project).  They process the loan application, and we were approved.

I have done two new construction projects so far. The first was a 2450ft (total) 3/1.5 duplex, land was purchased at $30k, build construction cost $165k, misc was $10k, for an all in cost of $205k. We initially had around $45k in the project, with our construction loan being $161.6k. We completed construction with a conservative valuation of $222k (I sold less than 12 months later for $245k). Our permanent financing was done at 166.5k (75% LTV)

The second is a 1780ft (total) 2/1 duplex, land was purchased at $10k, build construction cost $159k, misc was $10k, for an all in cost of ~$180k.  This project is less than one (1) month from completion.  I currently have about $25k in this project, with a construction lone of $172k. We should completed construction with a valuation of $230k.  With our permanent financing, we would be able to get a loan for 172.5k, leaving very little cash in the deal.

I am actively searching for my next lot.  My focus is finding land that works similar to the second deal, where there is good built in equity.  In order to do this, my land costs will likely be more (the $10k lot was a fluke, and likely should have been more like $30k).