A Hard Money Guide for Broken Construction

You decided to build a home rather than buy one.  You had your plans drawn up, created a budget, and bought the land.  Maybe you got a construction loan, maybe you figured that you'd finance it from your savings.  You started building your dream house but, 2006 came along with its higher labor and materials costs and...

YOU RAN OUT OF MONEY !

Well, my first comment is don't feel so bad; you are not alone.  I know that you're worried right now because you may have studs exposed to the elements but we can help you find a solution.  The good news is that your land value probably increased from when you bought it so there is some value to your property.  The challenge is that no one wants to lend you money now that you "botched" the project.  They think that you don't know how to manage your costs.

We disagree with those lenders.  We understand that many owner-builders and small professional builders were not able to hedge labor and materials costs because of those added costs.  We understand that you just got caught in a bad situation.  The good news is that we have private investors that will lend you the money to complete the project.  I'm not going to sugarcoat it; it is expensive money.  It is sometimes referred to as hard money.  Annual percentage rates of 12-15% for this money are not uncommon.  We just closed a loan for someone in your situation  at 14% rate plus 5 points.

Here is what we will do if the property is in Southern California or Arizona.  We will ask you to pay our construction inspector to visit the site (and with you) to determine a realistic budget to complete the project.  If that budget determines that the loan will be equal to a value that is 65% or less than the final appraised value (of the completed home), we probably have a deal.  The lender will require that the funds go into a fund control account which means you'll get the funds on a draw system.  That means you get some money, you complete a stage, then it is inspected and the work is approved before you get the next draw.  Don't let your ego get involved here; it's good that you'll have some professional guidance here.  It's not more expensive than buying a new home.