Getting Construction Financing Without Experience

In this guide, we’ll explain the typical experience requirements for private hard money ground-up construction loans, two strategies to work around the requirements, and how to find direct private construction lenders throughout the United States.

We frequently see loan requests on from real estate investors who have successfully completed a number of property rehab projects, and they want to make the shift to development deals. The reason for this could be that there are not enough rehab opportunities in the market, or the potential profits in a development project may be higher. But finding private financing for these deals could be a big challenge for real estate investors who’ve never completed a new construction project. Because ground-up construction is far more complex than rehab projects, most private hard money lenders will not consider financing if you have never completed a similar deal in the past.

Experience Requirements for Private Construction Loans

Most private mortgage lenders will require the borrower to have completed at least 2 ground-up construction projects, as the investor or developer, in the past 24 months. Some lenders require 3 or 4 completed projects, and a few lenders require only 1.

If you’ve flipped hundreds of houses or rehabbed lots of multifamily properties, that does not count. Hiring a top-rated general contractor doesn’t help either. However, if you are a general contractor with years of construction experience building for clients, and you’re doing your own investment for the first time, that could make a strong case for a lender. But if you’re a subcontractor with expertise in one or two trades, that wouldn’t qualify because you need to have experience with all aspects of a construction project from start to finish.

Another thing to note is the less experience you have the more cash you’ll need to contribute to the project cost, and you’ll need to have lots of additional cash on hand for reserves, in case the project goes over budget.

Strategies to Getting Construction Financing Without Experience

There are two strategies we suggest which may enable you to get private construction financing without experience.

Strategy #1 – Partner With a Developer

The first strategy is one that most lenders would likely suggest, and that is to partner with a developer who has sufficient experience. This can be a touchy subject for some property investors. You may not want to share the profits on your first deal, or you may not trust a developer to be your partner.

And what if you don’t know any developers with who you can partner with? One solution to that is to start networking in the community where you plan to build. Find out which developers are currently working on projects similar to yours and reach out to them directly. You may be able to meet developers in person at city planning hearings or real estate investment club meetings.

If you decide to use this strategy and you’re able to find a partner, you’ll need to form a new entity for the partnership, and both of you would be co-guarantors on the loan. You can look at this partnership strategy as a learning experience for just one or two projects, then you may not need a partner for future deals.

Strategy #2 – Hire a Construction Consultant

The second strategy we suggest is to hire a construction consulting firm to guide you through the entire project. It’s a rare and unique service, but a construction consulting firm could be a great solution. They can evaluate the project feasibility, estimate potential profits, set up your budget with realistic cost estimates, hire contractors, review inspections, and advise you on all aspects of the project until completed. The cost for this service can add a lot to your budget, but it’s a good alternative to partnering with a developer who will take a lot of the profits.

Now, this strategy is not widely accepted by private lenders, so you’d have to propose this and make a case. It may be best to hire a consultant to evaluate your project and set up a budget before you reach out to a lender. The benefit to this path is the lender can see the consultant’s work first hand. Along with the budget, create a resume for yourself to document all of your past real estate projects, financials, and current assets. Also, you would have to assure the lender that the consultant’s services will be retained for the entire project, not just in the beginning until you get the financing.

How to Find Residential Construction Lenders

You can find direct private hard money lenders right here on our website. There’s no fee to search and no registration required.

  1. Start at the Residential Construction Lenders page
  2. Type in a state or major metro area, and click SEARCH
  3. Browse the list, and use the filters to refine the results
  4. View each lender’s profile to learn about their guidelines, background and more
  5. Scroll down to find the Construction Loan Criteria section. The rates and fees at the top of the page may apply to different loan programs.
  6. Click the green CONTACT button and reach out to the lender directly

How to Find Construction Consultants

You can also find construction consulting firms here on our website.

  1. Visit our Service Provider Directory
  2. Click ‘Investor Services’
  3. In the Filter section, select ‘Construction Consultants’
  4. View each company’s profile to learn about their services
  5. Click the green CONTACT button and reach out to the company directly
August 15, 2021