Most lenders will only offer Arizona Spec Home Financing to experienced builders, simply because being cautiously optimistic about a deal is not enough. You must have firsthand knowledge of what can go wrong and be able to pivot when you see a danger sign looming in order to have success in the industry.
1. Missing the timeline or budget. The vast majority of issues homebuilders cope with relate to missing the timeline or budget. These areas are incredibly sensitive and must be monitored throughout the project. If you realize your budget is sliding, you need to make concessions, find safe ways to cut costs, or find other ways to bring in money to complete the project, and it’s important to do this before the money is tapped out. The same is true of the timeline, though a rogue schedule may sometimes be tamed by rescheduling contractors or finding one with better availability. If either of these things aren’t addressed when they’re small, they will snowball and could result in you having to pay fees to extend your Arizona Spec Home Financing term or having to find a way to pay it off before the property is sold.
2. Having property value decrease during the build. It’s important to keep an eye on the markets before and during the build to make sure there aren’t large fluctuations. If there’s a significant dip, you may want to consider pivoting to a build-and-hold strategy until the market recovers. You could also see reductions in value if your contractors aren’t doing quality work. Obviously, the best way to avoid this is to vet your contractors carefully before hiring and then to make sure you’re upholding your end of the agreement and seeing to their needs. However, even the best people are capable of slipping up, so monitoring progress and quality of work is a must.
3. Not having an alternate exit plan. Although this was touched on a bit above, its importance cannot be underscored. The typical exit strategy is to complete the house, sell it, and pay off the loan. However, if you’re unable to follow through with this process for any reason, you’ll need to know what it will cost you to extend your loan and if you’ll qualify. Conversely, you can also look into options such as traditional loans and bridge loans, depending on what your Plan B is. In any case, know what it takes to get approved well in advance.
Know How Your Draw Schedule Works in Advance
If you haven’t used Arizona Spec Home Financing before, you’ll need to familiarize yourself with draws. Rather than giving you funding in one lump sum, loans are typically portioned out into smaller allotments available when you hit specific milestones. In an effort to reduce risk, lenders usually have the first draw come from you. That’s your down payment. Following this, you’ll get a preset amount, perhaps 10-20% of the loan, at specific points, such as when the foundation is poured or the framing goes up.
If bank eligibility is a problem and/ or you have rotten credit, consider working with a hard money lender.
Banks are wary of doing Arizona Spec Home Financing because it can be riskier than other ventures. If something goes wrong and you don’t finish the project, you’re leaving them with an unpaid bill and mess to clean up too. Because of this, denial rates are fairly high, but Arizona hard money lenders often help when banks do not, simply because they’re willing to look over your plans and experience. Plus, they put more stock in the value of your asset than they do your credit score. This opens doors for many, though you’ll still need to be mindful of the danger zones throughout your project.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.