1) Traditional bank - You will need to talk to a lot of them. Smaller local banks are more likely to lend to you. Chase, BoA, and Wachovia will not. Our team has talked to literally every bank in our county, about 80-90 of them. From that list we have used 5. Prepare a package that describes your project in detail. Lay out the costs and timelines. Consider hiring a professional to help you make your bank packet. Once it is ready, give it to 10 banks and tell them all that you are giving it to 9 other banks. This will get you the best terms, show them you are a pro, and greatly increase your chances of getting a loan. You will meet a lot of bankers too which is great networking. You will likely need 20% equity in the deal and good credit. If you don't have those, get a partner that does.
2) Hard money - This is going to be more expensive, but there are plenty out there who will loan to a new builder if you bring enough equity to the deal. These guys win when you default, so you had better be sure you can get it done on time. These loans make sense when time is critical and you are confident you can deliver on schedule. I would stay away from them on your first few deals. Any Real Estate meetup is going to have a few hard money lenders present.
3) Private loan / Partner - Bring a partner into the deal that can finance it. Here the options are what ever you negotiate.
If you are going to be doing new construction in the long term, you will want to develop #1 for sure. #2 and #3 are also very useful and make sense for the right project.
1) Traditional bank - You will need to talk to a lot of them. Smaller local banks are more likely to lend to you. Chase, BoA, and Wachovia will not. Our team has talked to literally every bank in our county, about 80-90 of them. From that list we have used 5. Prepare a package that describes your project in detail. Lay out the costs and timelines. Consider hiring a professional to help you make your bank packet. Once it is ready, give it to 10 banks and tell them all that you are giving it to 9 other banks. This will get you the best terms, show them you are a pro, and greatly increase your chances of getting a loan. You will meet a lot of bankers too which is great networking. You will likely need 20% equity in the deal and good credit. If you don't have those, get a partner that does.
2) Hard money - This is going to be more expensive, but there are plenty out there who will loan to a new builder if you bring enough equity to the deal. These guys win when you default, so you had better be sure you can get it done on time. These loans make sense when time is critical and you are confident you can deliver on schedule. I would stay away from them on your first few deals. Any Real Estate meetup is going to have a few hard money lenders present.
3) Private loan / Partner - Bring a partner into the deal that can finance it. Here the options are what ever you negotiate.
If you are going to be doing new construction in the long term, you will want to develop #1 for sure. #2 and #3 are also very useful and make sense for the right project.
@John Blackman, great thorough options! We are a direct private / hard money lender based out of San Diego, but we lend in CA, NV, AZ. We have seen a recent spike in demand for funding ground up residential construction in Southern CA. It seems to be largely due to the lack of inventory in desirable coastal areas. The key is for the developer to clearly and completely package the deal and have at least 20% down or a combination of capital, equity and/or collateral.
Best wishes on obtaining financing for your project.
1) Traditional bank - You will need to talk to a lot of them. Smaller local banks are more likely to lend to you. Chase, BoA, and Wachovia will not. Our team has talked to literally every bank in our county, about 80-90 of them. From that list we have used 5. Prepare a package that describes your project in detail. Lay out the costs and timelines. Consider hiring a professional to help you make your bank packet. Once it is ready, give it to 10 banks and tell them all that you are giving it to 9 other banks. This will get you the best terms, show them you are a pro, and greatly increase your chances of getting a loan. You will meet a lot of bankers too which is great networking. You will likely need 20% equity in the deal and good credit. If you don't have those, get a partner that does.
Thanks John, I am interested in this too. You mentioned possibly hiring a professional to help with a bank packet. Who do you mean by professional?
This would be someone like <name drop> https://www.clsaustin.com/ </name drop> or a banking of finance consultant. These are generally ex-bankers that know how banks work and what they like to see in a presentation to get it through the loan committee. They have connections in the finance industry and connect lenders to borrowers.