Choosing the right builder loan for a large commercial project can make the difference between a healthy profit and breaking even on a build. Shopping for a lender can be a complicated process. While the cost of the financing is one consideration, the experience and ability of the lender can be a tipping point. The right lender has the experience within the industry to not only complete due diligence and regular inspections but to offer advice and support throughout the build or rehabilitation of the property.

Structure

Once a lender has been chosen, there are several ways a builder loan can be structured. Interim financing covers the construction phase, offering a short-term solution. Interim products are best suited to situations in which the builder needs funds distributed on a regular schedule to cover supplies, labor, and other costs during the build. This plan works well on projects for which the client is able to acquire a full mortgage upon completion of the build. Due to the uncertain nature of construction, considerations for delays are normally built into the contract. Regular inspections help ensure the project stays on track and gives the builder valuable input.

Flexibility Advantage

The biggest advantage of interim products is flexibility. Funds can be released on an agreed-upon schedule, which can be adjusted as needed. The lender is actively involved, which provides extra support throughout the build. A potential con is the amount of work that goes into the process of acquiring funds. A rigorous projection of the work to be done and the scope of the job is necessary. The preplanning stage can be a blessing in disguise, however. A detailed, well-researched plan can alert the builder to potential challenges.

By contrast, long-term real estate loans are more traditionally structured, lump sum builder loans. The interest rates may be fixed, variable, or adjustable, depending on the borrower’s preference. Typically, a long-term loan covers about 80 percent of the total cost of the project, leaving the lender to acquire the other 20 percent. One option for borrowers to ensure a reliable source of funding is a real estate investment trust or REIT. The REIT is populated by investors who earn interest over time. In this way, the builder can minimize costs while ensuring the cash flow is sufficient throughout the completion of the build.

Economic Considerations

The type of builder loan that’s best suited for each individual job depends on the project, the client, and the economic climate of the area. In a strong economy, a more traditional loan structure makes sense. The more flexible and creative interim product is the right choice for projects that have been carefully planned and organized for maximum efficiency.

A lending company with its finger on the pulse of local economics and experience in the industry is the best choice for a partner to complete a project most efficiently and at the lowest cost. Choosing the right lender means gaining a partner who is capable of supporting the building process and maximizing profit and client satisfaction.



Source by Andrew Stratton