Many private lenders were inundated with new clients looking for money to fix-and-flip houses following the housing crisis. However, as the housing sector grows, particularly in California, hard money lenders have to get new prospective clients outside of the regular flip ones. This presents an excellent opportunity to delve into the funding of private money construction loans as not all builders can afford traditional bank financing.
As a private money lender, housing is a great way to build your portfolio if done properly. Therefore, evaluating a private money construction loan as discussed below is key to ensuring that you enjoy a profitable deal as a lender.
- Critical review of the deal
A construction loan is quite different from other regular loans. It would be best if you had a proper understanding of the market to determine the worth of the property after building. Unlike the fix and flip properties, ground-up projects have a finished value that grows with the economy and market situations. Other factors such as the third-parties involvement involved in appraising the property should be carefully considered in making an informed decision.
- Effective Underwriting
One primary means by which you can offer protection for yourself as a lender when making a construction loan is during the underwriting process. During this process, you can learn more about the borrower, their previous projects, and the project they are borrowing for.
- Protecting your investor
The key to securing any construction loan is to consider your investor’s best interests. These loans can yield a high return if done correctly, but failing to conduct sufficient due diligence and vetting the project can result in a slew of issues.
Going by these principles will significantly improve the chances of success of the project and, in turn, the returns on loan.
Do you want to learn more about construction loans and how best to evaluate them? Click here.
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