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Spec Home Financing: Why Private Money is the Real Deal
It's doubtful that any builder has the cash in on hand to construct a spec home out thin air. Most developers need some form of capital to bring their visions into reality, and like any other form of real estate financing, there are a variety of options. When it comes to there are three broad classes, banks, credit lines, equity loans, and private money. When it comes to spec homes, private money is almost always your best bet.
The great recession still haunts conventional banks. Come in with a word like "speculative," attached to your application and expect a few raised eyebrows. In the case of spec homes, banks only offer loans to the most experienced developers, but there is a catch. Even if you qualify at a brick and mortar bank, the loan they give you is based on a set percentage of the lands appraised value. Will 90 percent of a 50,000 dollar plot cover the cost of constructing a 300,000 dollar home? Probably not.
Credit lines are another option, but qualifying for a 300,000 dollar line of credit is no easy feat.
So another option might be leveraging your personal assets to finance your next project. Yes, you put your real house on the line to construct a home based purely on speculation. No matter how much you might believe in your project, this is not a sound idea.
None of these options are exactly great choices when it comes to financing the construction of a spec home. But never fear not all hope is lost.
Private money advantages when it comes to spec home financing
Private money usually refers to individual investors or lenders who act more like investors in the upside potential of your property (i.e., Hard money). Private money offers an advantage over banks in that the loan terms are flexible, as draw schedules, and interest rates are up for negotiation. But above all these lenders are willing to offer funds as a percentage of a homes projected value, which means your loan can actually cover the cost of construction. Private money might be more expensive than say a home equity loan, but putting your actual house on the line to build a house on speculation is not a very sound strategy.
However, private lenders don't just throw money away. These are individuals or groups with their own interests, and you will have to prove to them that your project is worthwhile.
Tactics to increase eligibility forYou need to convince private investors and lenders to get on board with your project:
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
[email protected]
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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