100% Financing Program for Ground-Up Construction Projects

Get an overview of Rehab Financial Group’s 100% Financing Program for ground-up construction projects in 30+ states. Private Lender Link’s CEO, Rocky Butani visited the company’s office in January 2023 to interview the company’s President, John Santilli. Watch the video or read the transcript below.

ROCKY BUTANI:

Do you offer ground up construction loans, and can you tell us about the program and the requirements?

JOHN SANTILLI:

Yeah, we definitely do offer ground up construction. Again, for us, it’s not our core business, but it’s definitely a service that we provide. We look at construction loans in a couple of different ways. We are not looking for a large builder. Okay. We are more of the one-off builders that are looking for an experienced builder to build their property where they are the builder and they want to build a couple properties at a time. But mainly we’re going to be focused on them and the small, medium-sized investor, excuse me, builder. And the fact is, is that for that person, we will get involved with the acquisition of the land, we will get involved with some of the horizontal and the vertical cost associated with it. Our ideal customer is somebody that already owns the land and they’re looking for their construction. And we have no LTC caps on the construction at all. We go up to 70% of the as completed cost. So the loan structure in general, how it looks is, is that we are funding 70% of the purchase of the land and we will go up to 70% of the as-completed cost while funding 100% of your construction cost.

ROCKY BUTANI:

Do you participate in the land purchase?

JOHN SANTILLI:

Yes, we will get involved with the land purchase. Our ideal customer is that they already own the land, especially if they are building 3 to 5 units, or something like that. And maybe they already have the subdivision lined out or the lot’s already lined up and they’re shovel ready. That’s our ideal small to medium-sized builder, and we will lend 100% of the construction costs, up to 70% of the as completed.

ROCKY BUTANI:

So you’d fund 70% of the land purchase, and builders need 30% cash down, then you fund the rest?

JOHN SANTILLI:

Correct.

ROCKY BUTANI:

What about the cash reserve requirements? How much liquidity builders need to have in order to qualify?

JOHN SANTILLI:

So very similar to our fix and flip program, as far as your underwriting criteria is concerned, we are looking that it is your money, your assets, your income, your credit. And effectively what we’ll do is we will take 6 months worth of reserves. That means no payments during that period of time. And again, these are interest as drawn loans. So that 6 months might be equivalent to a lot more than 6 months.

ROCKY BUTANI:

And what about liquidity requirements? Do you require 15% of the total construction budget, or is it higher for ground up construction?

JOHN SANTILLI:

It was 10%, and now it is 15%. You don’t have to come to the closing table with those funds. One clarification I want to make is that we require in all of our loans that you have a 10% contingency. That is not the liquidity requirement, but that you do have a 10% contingency built in on all of your loans. For example, if it’s a $100,000 construction budget, 10% of that is a reserve in place. So it’s just if anything else comes up, you have the money reserved.

ROCKY BUTANI:

So that’s just in case the project goes over budget?

JOHN SANTILLI:

That’s correct.

ROCKY BUTANI:

What are your experience requirements for ground up construction financing?

JOHN SANTILLI:

Generally speaking, we want the builder to have ground-up construction experience. So right now we only require that you have one completed project within the last 12 months. If you are outside of that, we can go up to 3 years. It might be a little bit less on the as completed value. But we will also allow customers that have zero experience, so long as they hire an experienced builder.

ROCKY BUTANI:

If I don’t have any experience with a ground up project on my own as an investor, I can just hire a general contractor? And then do you have to vet that contractor?

JOHN SANTILLI:

Yes, the general contractor would be vetted at that point in time to make sure that they have builder experience and have completed a project during that past year. And we will still take a look at their resume.

ROCKY BUTANI:

What’s the maximum loan term for ground up projects?

JOHN SANTILLI:

Typically we’ll go to 12 months, but we will extend that to 18 months as well.

ROCKY BUTANI:

Do you offer ground up construction loans in lots of different states or are you restricted by geography?

JOHN SANTILLI:

That’s a great question and it’s an evolving question right now as well. We are generally speaking, being a little bit more cautious with the ground up in some of those states that are being impacted by the large decline in values. So while there is no general restriction on the states that we’re already licensed in, you could anticipate that if it’s in one of those areas that has declining values, we may require a second appraisal, to ensure that the value is stable.

ROCKY BUTANI:

Do you only lend on a single home build or do you allow multi-home developments for ground up construction loans?

JOHN SANTILLI:

We will allow multi-home developments. Our restrictions are more based on your qualifications and the total loan amount that you’re requesting. So right now we will go up to $3,000,000 for any individual. So if that’s a collective amount of properties or if that’s one property, that’s really what the criteria is set for.

ROCKY BUTANI:

I didn’t know that you participate in the land purchase. Do it have to be shovel ready?

JOHN SANTILLI:

So for a single hom build, we will get involved with the land purchase and the land prep, every piece of that from beginning to end. If somebody is buying a raw piece of land and they’re looking to build a subdivision of 5 homes, that’s less likely that I’m going to get involved because he’s buying a raw piece of land. He’s got to develop the land and do the horizontal, and then he’s got to do all of the vertical as well. That’s too much and takes too long. It’s going to be case by case.

ROCKY BUTANI:

But isn’t there the same risk if you’re doing a single property, that it could just take a long time to get the approvals and get the horizontal done? Obviously it’s not going to be as cumbersome as a subdivision, but you still have that risk of it taking a long time, right?

JOHN SANTILLI:

Whether it’s an individual or let’s say a group of five properties that we’re trying to look at. The risks are similar, but it’s longer to take care of five than it is to take care of one. So we know that, and we’re not really in the land loan business. We’re in the construction lending business. So we want to make sure that with either one of those individuals, we’ll be trying to figure out on the front end where they are in the permitting process. Because most of these projects that we see, especially the one-offs, the permits are ready.