Clay Sparkman
We’ve had a lot of developers call us over the years to talk about construction loans for single-family homes (or fix and flip type properties). They’ve traditionally gone through banks and have enjoyed rates as low as 7% for their projects. However, these days, some of those banking relationships aren’t there anymore, so they’re looking for alternatives to finance their projects. At first look, our rates of 12-14% can cause some builders sticker shock. However, once you put those rates into perspective, they don’t tend to seem so expensive after all.
Let’s use the example of a $250,000 construction loan on a house that would sell for $400,000. Let’s say your borrower has traditionally paid 8%, interest only, for their rate, paid 2.5 points and incurred an additional $3,500 in fees from the bank. The total cost for a six-month loan with interest and fees would be $19,750. That would represent about 5% of their total home price, for financing costs.
If the same loan were done through Fairfield, the rate would most likely be 13%, 5 points and about $3,500 in fees. The total cost for a six-month loan would be about $32,000. That would represent about 8% of the total home price, for financing costs.
So, you can see there is only a 3% increase in the margin for using hard money. In the big picture, that’s not as large of a difference as you may have thought. This is potentially much lower than an equity partner who may want up to 50% profit participation. And, it’s certainly worth considering if your borrowers are looking for alternative means to finance their construction projects—and in particular, if they want to move quick and easily.
There are many benefits to using hard money: faster processing, less documentation (no tax forms), no pre-payment penalties, and frequently, a very low down payment required. Hard money begins to look downright attractive. We encourage you to give us a call and let us price out a construction loan for you and your borrowers. The cost of using hard money is not as high as you think.
– Clay (clay@privatemoneysource.com, 503-476-2909)
Clay is Vice President of Fairfield Financial, a primary source for private money since 1964. Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX, but is able to source loans nationwide. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php
Tags: construction loans, hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans, Quick flip loans, rehab loans, REO funding, Short sales
