What Is Acquisition And Construction Funding?
There are many different types of hard money lending and they are not standardized because the money is private and the underwriting is normally done by individuals who have different tolerance levels of risk. Some hard money lenders will do funding for the purchase price only and have the investor fund the construction portion. Some lender will do the reverse and only lend on the construction. They will require that the client buy the property with cash so the lender can take a first position on the property. Some companies, like Hard Money Bankers, fund both the construction and purchase of the property. The way it works is the loan value is normally determined based on the ARV or 'After Repair Value'. This is the value that the property can resell for based on being fully renovated. The percentage is usually 60-70% of the ARV number. From there, the construction costs are held in escrow for disbursement. The client will break the construction into several phases to have each one paid upon completion. For example, if there is a $50,000 construction budget, a client might break that into 5 draws. When the first phase is completed, the client will notify our office and upon verification will receive the first draw. This happens all the way up through the $50,000 budgeted for construction. Many investors will have a very little amount of money out of pocket once the final construction is completed. Learn how to use the different funding strategies and see what works best for your investing model.
Ian Walsh215.839.3271
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