Real estate investors regularly finance the new building projects they have, for one of the main benefits of real estate investing is the ability to leverage through financed loans. If you're comparing different new construction financing quotes for a new investment project, make sure to take these factors into consideration.
The downpayment is how much must be paid upfront at the time that the loan is taken out, and the amount is usually a percentage of the project's costs. Most new construction loans from banks require 20 to 30 percent down -- which is considerably more than what's required for a house that you'd live in.
While 20 to 30 percent is a relatively narrow range, such a difference amounts to a sizeable sum when undertaking a real estate investment project.
For instance, consider how much a 10-percent difference amounts to if working on a seven-figure real estate development project. If a project's total cost will be $1.5 million, a 20-percent downpayment is $300,000, and a 30-percent downpayment is $450,000.
In the above example, you'd need an additional $150,000 in order to secure a loan that requires 30-percent down. Finding a loan that requires only 20 percent down will greatly increase how expensive a project you can undertake.
When checking the interest rate, look both at the total number and at the type of rate that's offered.
The interest rate itself determines how much interest is paid annually on the outstanding balance, and even a small reduction in the interest rate can yield big savings. For example, a 3-percent interest rate on a $1.2 million balance would result in interest charges amounting to $36,000 in the first year. A 4-percent rate would increase the first-year interest to $48,000.
Whether the interest rate is fixed or variable determines whether it can change. Fixed rates won't change for the duration of the loan, while variable rates will adjust as market rates fluctuate.
A low fixed interest rate will provide savings and dependability for the duration of the loan. If you'll only have the new construction loan for a short time, it may be better to get a variable rate if doing so allows you to lower the downpayment.
The term of a loan states how long the loan is good for, and when the outstanding balance is due in full. Look for a term that's a little longer than your project's timeline so you have some leeway if there are delays in construction
For more information, contact a financial company like Triton Investors.