Architect drawings as equity?

[Seth Crowder]

I have a buddy who is a great architect. We are exploring a partnership and he said that banks will often accept architect drawings as equity when considering lending on a fix/flip or new construction deal. 

Is anyone familiar with this at all? The hard money folks didn't seem to know what I was talking about when I asked. 

[Eric Teran]

As an architect I have tried this twice for new homes on vacant lots for construction loans. Once in California about 10 years ago and once in Virginia 3 years ago. Both times I was told no and between the two I called over 40 banks. Big and small they all said they only cover construction costs. Soft cost are on the owner. They would not count my fee as equity or a percentage of any down payment. Same goes with all the other consultant fees to get a permit.

Their response was that a permit has no value to them. If the project doesn’t get built the bank is left holding a set of plans with no owner. Who knows what the new owner will want to do? Actually before you get a loan all banks require you to have a permit for a construction loan. Especially on vacant land.

A few banks said I could be reimbursed if my construction cost were under the LTV. For example if my LTV was 80% and my construction cost was only at 70% they said I could ask for more to cover soft cost and be part of the first bank disbursement. Both my experiences had construction cost that were the full LTV so I did not get any reimbursement.

There are lots of different loans out there, lots of forms of construction and relationships always help so I would ask. It hasn’t worked for me so far but I still ask every time I speak to a new bank. It doesn’t hurt to ask.