However, there are alternative lenders who can finance such projects, albeit at a higher cost. The benefits of working with these lenders include faster initial financing and better service when it comes to reimbursing construction costs. In this post, we'll cover what an alternative lender looks for when considering a ground-up construction project.
First and foremost, experience is paramount. Lenders want to see that you've completed other ground-up projects and that you know what you're doing. It's important that these projects were completed recently, as labor and material costs can fluctuate, and you'll need to stay up-to-date on industry changes.
Understanding all aspects of construction is crucial for a ground-up project, as issues can arise with roofing, framing, permits, foundations, supplies, and timelines.
Lenders want to make sure that you can manage multiple subcontractors and their timelines, as builders who haven't done ground-up construction before may not understand what it takes to manage such a complex project. Payment terms and lining priorities are also complex issues that require expertise.
Another important factor that alternative lenders consider is the project itself. There are certain projects that make lenders wary. In California, for example, prestigious sites tend to be on hillsides, which can be extremely complex and difficult for most builders to comprehend unless they've done them before. If you haven't worked on such projects before, you'll likely need an experienced foundation contractor to handle them.
Additionally, alternative lenders generally don't like rural properties. Residential investment lenders always examine the worst-case scenario, and no one wants to take over a ground-up construction project that might be halfway done and located 100 miles from the nearest city without a ready and waiting market to purchase the project when it's done. Ideally, ground-up construction projects should be infill.
Lenders also prefer projects that fit in with their surroundings. If you want to build a geodome or a brutalist house that doesn't match the neighborhood's aesthetics, it will probably get turned down, even if you have experience, liquidity, and good credit. Keep in mind that lenders are looking at both the asset and the borrower in these situations.
Overall, alternative lenders can be a good option for financing ground-up construction projects. However, it's important to keep in mind that they will be looking for experience, expertise, and a project that fits with their requirements. With these factors in mind, you can successfully secure financing for your next ground-up construction project.