When most people think about seeking hard money lenders in California, they wish to get this type of loan to renovate an existing property to flip it for a sale. While this is typically the most common reason for working with California hard money lenders, it isn’t the only option. In fact, these loans can also be used for new construction as well. This is especially true if you intend to build a property for the purpose of selling it for a profit. However, if this is your intention with a hard money loan, it’s important to understand a few things about this process. These loans can be used for both commercial and multi-family residential properties, depending on the type of real estate investing you want to get involved in.
Consider the Location
One of the most important considerations you have to keep in mind when looking for California hard money lenders who are willing to provide financing for construction projects is the location of your project. In many cases, these lenders want to only work with projects that are close enough for them to visit in person, so they can keep a close eye on the project and it’s progress. After all, hard money lenders in California are interested in the overall investment, unlike traditional lenders who only have an interest in your ability to pay back the loan. Hard money lenders want to see you succeed and make more money from the investment because it benefits them as well.
Familiarize Yourself with the Process
Many hard money lenders are more than willing to help you through every step of the process, but it’s best to do your own research and familiarize yourself with the process as best you can before you look for the right hard money lender. This ensures you are fully prepared for your undertaking and will have a better idea of what your lender is talking about when you discuss the details of your contract. It can also be beneficial to review the rules that relate to hard money loans, especially in relation to how they work for a new construction loan.
Do They Include Lot Fees
Normally, when you purchase a property that already has a home or other structure built on it, there are few additional costs associated with the loan. You simply buy the property and pay for any renovations you wish to make before either renting out the property or turning it around to sell it for a profit. However, when you work with California hard money lenders for a new construction loan, this isn’t the case. When you purchase an empty lot, there are more fees that may be involved, especially if the sewer, water and electric lines have yet to be run. Unfortunately, many lenders are unwilling to cover many of these fees, which can leave you to find a way to pay for them on your own. Hard money lending works differently. These lenders are often more flexible and can provide you with the chance to cover many of these fees in the loan itself. In fact, many hard money lenders in California are willing to cover up to 70 percent of the value of the property, including lot fees that may be associated with its purchase.
Understand Downpayment Requirements
Hard money lenders in California operate differently than traditional lenders, which is why it can be difficult to know exactly what to expect from them. While some may not charge a downpayment, this is less likely when you’re dealing with a new construction. This is because there is a lot more than go wrong or become delayed during the new construction process. There is a lot more on the line for California hard money lenders than fix and flip loans or loans used to purchase and rent out properties. This is why even hard money lenders may require the borrower to chip in at least some of their own money toward the purchase and the building process. Be sure to understand what is expected of you before you move forward with your loan.
Ask about the Fees and Rates
If you’re used to working with traditional loans for the building process, you may find the higher interest rates and the unique fees a bit intimidating when you talk to California hard money lenders. While these may seem like they are a good reason to choose traditional loans instead, the benefits of hard money lending can often outweigh the higher interest rates and fees. However, it’s still important to understand this aspect of the loan before you make the final decision to work with a hard money lender over a more traditional loan for your construction project.
Is a Hard Money Loan Right for You?
Once you understand how these loans work, you will be better equipped to decide if this is the right path for you, so you can pursue your construction project the way you want. When it comes to building a commercial building for the purpose of real estate investing, whether you want to sell the building once it’s completed or you will be renting it out to retailers or other tenants, there’s a lot to consider, including how you will get the funding required to pay for the property. While it’s valid to consider purchasing an existing property and renovating it to best suit your needs or to make the repairs necessary to increase its value, building property from the ground up can be one of the best ways to meet your goals. If you’ve been thinking of looking for California hard money lenders, these factors can help you decide if this is the right solution to best suit your needs.
Building a property from scratch can be a major undertaking, especially if you need to determine how to design it to meet the needs of your prospective tenants or buyers. As you consider the scope of your project, be sure to talk to a number of California hard money lenders to help you make the best possible decision for your real estate investment goals.