In this guide, I’ll discuss the evolution of ground-up construction financing in the private lending industry from 2021 to 2022. This includes the build-to-rent phenomenon, the shift of investment strategy from fix & flip to ground-up, the reduction of interest rates, and the challenges of financing construction projects on a national scale. While attending the IMN Single Family Rental Conference in December 2021, I interviewed Nathan Trunfio, Managing Director and Head of Sales at Lima One Capital, to get more insights about this topic.
The majority of real estate investors who specialize in rehab value-add deals for multifamily and residential investment properties have had a hard time finding deals since the beginning of the pandemic due to record-low inventory. Some of them have shifted their investment strategy from rehab to development projects, and ground-up construction has become a very popular loan program in the private lending industry.
Increased Competition for Land Acquisition
In addition to the rising costs of building materials and construction labor in twenty twenty-two, investors face another challenge which was the catalyst for the shift to ground-up development projects, and that is low inventory. Starting in early 2021, there has been a huge demand for buildable land in urban and suburban markets throughout the country. If an investor is having a hard time finding vacant land to acquire, they may need to seek improved properties that can be torn down, but those too are in high demand.
Maximum LTV for Land Purchase Financing
The majority of private lenders that offer ground-up construction financing will also fund the land acquisition. The typical LTV is fifty percent of the purchase price for unentitled vacant land, and up to sixty-five percent of the purchase price for entitled vacant land. So investors will need to have a cash down payment of thirty-five to fifty percent for the purchase.
How to Find Private Construction Lenders
If you’re looking for a private lender to fund a residential or multifamily ground-up construction project, use our website as a resource. There are two options for using our platform.
Option 1: Browse Lenders
Search on our site for direct lenders. All lenders have a very detailed profile with information about their lending guidelines, rates, fees and much more. Make contact with each out directly by email, phone call, or visit their websites. First select a loan type, then enter the state where the property is located.
Option 2: Create a Loan Request
Fill out a questionnaire with information about your financing needs. You can then browse lenders and invite a few of them to view your deal. Or ask us for recommendations; we’ll review it and invite a few select lenders that we feel may be a good fit.