Construction
loans are designed to pay for
the land
development construction phase
in stages. By providing collateral,
usually by pledging the land (assuming
the land is free and clear, which
means no debt), the lender will
disburse funds according to the
schedule of production for the
project.
Proper Timing The Secret To
Construction Loans
Why timing? All construction
loans for development
either for the infrastructure
or the ultimate vertical structures
are time based loan, which means
that they will only remain in
place until something happens
to pay off the loan.
The average term for a development
loan for a typical small
subdivision, less than a hundred
homes is around a three year program.
With a project of this size there
will be partial releases of the
building loan as the individual
units are sold off to the new
property owners.
For a project of less than fifty
units the term would be close
to two years, also applying partial
releases as the project is sold
out.
For an industrial
warehouse project a building
loan may not be in place
for more than one year, before
a new investor places a term or
permanent debt against the property.
What should become very clear
is that the complexity of the
project generally dictates the
term of the secured debt.
EXIT STRATEGIES…
The plan by either the investor
or the lender to pay off the building
loan.
A loan for construction can never
be a permanent loan. It can only
be a temporary loan until it is
paid off by a permanent loan of
the eventual buyer of the property.
However before construction loans
are secured an acquisition
loan to acquire the property
must be secured.
For a No-obligation Professional
Financial Loan
Analysis of any Commercial
Investment you may be considering
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