Construction Loans in Hampton Roads Area

[Jacob Darrah]

Hi Virginian BP'ers!

My two partners and I are newbie investors in the Virginia Beach area and are trying to get started on our first deal. Through mutual friends we know a builder that has a set group of 6 or 7 floor plans he and his team build regularly, and so they know exactly what it costs and how long it takes for each one. We're really interesting in buying a cheap property to demo and spec build on the lot. 

Our realtor is pushing/advocating hard money lenders, but I was wondering if anyone has had experience getting a construction loan from a bank around here? If so, did they include purchase price of prior existing home? Just the land? LTC and interest rates? Any information would be helpful. Thanks so much!

[Andrew Michael]

I have done a good number of deals down in your area.  I think without a solid track record your going to find it difficult to secure bank financing for the type of deals you want to do.  Furthermore, banks are terribly slow to close and release draws.  I have talked to several clients lately who told me their bank financed deals are taking 30 days just to get a construction draw.  At that rate you might as well finance the construction yourself.  

I think your realtor is correct.  You need to secure quick short term financing through hard money, private money or bring on an equity partner.  

The new build finance structures I have see are as follows.  50-65% of the land value at closing depending on location and specs.  Borrower must get through demo, foundation, and have something that resembles a structure in place.  Once the borrower is first in with say 20-30% of the LTC the lender comes in and back-fills the remaining construction for the duration of the project.  I am sure there are many programs out there but that is a typical structure up here.