New Construction Loans in Houston

[Daniel Hoffmann]

I am looking for lenders and advice for acquiring loans for new construction.  I am looking at buying a lot in Houston using owner financing.  I have enough for the down payment and monthly payments.  I am buying this through a Partnership Joint Venture with another experienced investor and an experienced general contractor who is looking to invest as well.  We will each put a third of all costs, flip the property, and then split a third of all profits.

My third of the construction cost will come to $50-70k. What is the best way of acquiring these funds? Will each of our lenders want first lien? Should we each search for our own funding or get one lender to fund the JV project? If anybody here has done something similar, how did you do it?

Any advice would be helpful.  Please post in this thread or PM me!  If you know any specific lenders please let me know!

[Jonathan Williams]

First off, is your GC experienced in the type of construction you will be building? If so, has he worn a "developer hat" before, having knowledge of the re-plat/subdivision process (if req'd) that James mentioned? And city permitting, working w/ architecture, soils testing, etc.? Its not that complicated, but will be good to hear he is building within his wheelhouse. Builders are often excellent at managing their crews to get the work done, but not so good at managing to a schedule and run an efficient operation that will cut down on your project duration (and thus holding cost). He also needs a track-record of management success to present to the bank.

We are just starting a development project in Houston, and have talked to Independent Bank and Prosperity Bank here in Houston. Both have construction loan offerings. There is no question that you should finance this jointly with your partners under your partnership entity if you want to go the traditional construction loan route, but whoever is on the note (1 of you, 2, or all 3) need to have strong financials to satisfy the bank requirements. With conventional construction loan comes the required insurance through construction. They also have options to roll over to more conventional financing upon project completion if that should be necessary. You need to structure the financing around the needs of the project, so what are you building?

Of course all lenders will want first lien. If you have 3 lenders, each want collateral to protect their investment, and it doesn't make sense that they all have rights to a third of an asset independently. That's why if you finance separately, it'll likely need to be secured by something other than the asset itself or you go the private money route, then having to deal with separate insurance, etc.