How Do Construction Loans Work in California?
What do you need to get construction loans in California? Learn how the borrowing process works for these specific types of loans.
The U.S. housing industry is still booming at over $30 trillion in value, with California remaining one of the hottest markets in the nation.
It takes capital to compete as a real estate investor, but how do you break into California’s multi-billion dollar real estate sector if you don’t have enough to compete?
You need an opportunity that you can spin into gold, and that’s exactly what you get with construction loans. These loans are designed for ambitious real estate investors who want to sell and scale quickly.
Learn how construction loans work in California in this complete guide for investors.
Hard Money Construction Loans
There are a few ways to secure funding for your real estate investment projects.
The most popular construction loans for real estate investors are hard money loans. California has one of the largest hard money loan markets, which has allowed investors to buy, renovate, and sell properties fast.
With a hot seller’s market and an average home value of $600,000, California is still brimming with opportunity for house flipping investors. But you have to act fast. Fortunately, hard money lending is one of the quickest ways to secure financing.
Hard money loans are also ideal for high-risk real estate ventures that traditional banks may otherwise deem as “too risky” for funding. They’re also a lifesaver for new investors who don’t yet have the capital-on-hand to compete. Instead, hard money loans are secured by the investor’s non-owner occupied properties.
Nonowner occupied properties are properties that aren’t occupied by the real estate investor themselves. They’re valuable assets for building and scaling real estate investment ventures, allowing investors to finance, buy, sell more properties quickly.
Timing is Everything
Timing is essential for real estate investing. If you’re passing on great real estate deals because of a lack of capital, that’s a problem. Taking advantage of opportunities on the spot is vital for real estate ventures.
You need money fast if you want to grab a promising property. This is one of the benefits of hard money loans. The approval process is fast, even quicker than a traditional bank. A traditional bank may not even approve your loan, which puts you at a disadvantage.
Hard money construction loans step up where bank loans come up short. You could have your loan approved in a matter of days. Traditional bank loans can take several months to process; by then, your ideal investment properties have already been scooped up.
Bridge Financing Construction Loans
Bridge financing is also available for California real estate investors who want to buy up properties fast, especially properties with previous damage. These loans are also a quicker alternative to traditional bank loans.
Bridge loans are ideal for real estate investors who want to buy and fix up multiple distressed properties. This is an excellent way to build up your property inventory while financing necessary renovations.
If you’re a new real estate investor who lacks liquidity, bridge financing is a smart way to get your foot in the door and compete.
Flexible Interest Rates
Interest rates vary, but bridge financing, like other hard money loans, come with slightly higher interest rates than traditional bank loans. However, for experienced real estate investors, the trade-off has been worth it.
Bridge financing and hard money construction loans are designed for short-term projects. The goal is to buy, rehabilitate, and generate profit quickly. As one property starts generating profit, it pays for the next.
Profitable investors can pay off their short-term loans quickly and prepare for the next property deal. Furthermore, bridge and hard money loans come with flexible payment options, which is essential for new real estate investors who are just starting out.
Flexible interest rates are another reason to choose a direct lender who specializes in loans for real estate investors and house-flipping projects. You also enjoy lower interest rates than most hard money lenders in California. Plus, you’re not subjected to hidden junk fees, application processing feeds, or outrageous loan underwriting rates.
Fix and Flip Loans in California
California’s hot housing market has created a huge house-flipping resurgence over the years. Like all real estate investing, timing is essential if you want to successfully flip houses for a profit. Fix and flip loans provide established and aspiring house flippers the right amount of funding to succeed.
Fix and flip loans finance up to 90% of the property itself and 90% of costs needed for repairs and sales. These loans are ideal for investors who want to flip residential homes.
Like other bridge and hard money financing, California’s fix and flip loans provide fast funding. The approval process only takes a few days, not several months like traditional bank loans. Furthermore, you could get up to a third of your budget in advance, so you can spearhead your investment quickly and move on to the next property deal.
Build From the Ground Up
There’s a housing shortage in California, which presents a huge opportunity for real estate investors. Building a home from the ground up is an involved process, but you still need fast funding if you want to grow your real estate inventory.
Ground-up construction loans are for investors who have big ideas for new residential properties. It’s an opportunity to attract more professionals and families to the state. Smart investors need loans that can cover the entire cost of the project.
You need enough financing to cover the cost of experienced general contractors and builders, high-quality building materials, permits, legal fees, surveying, land purchases, and more.
Owning a home in an American dream for so many residents. Ground-up construction loans help real estate investors build thriving residential communities for California homeowners. These loans are also ideal for landowners who have been given the green light to build residential homes on their property.
Build Your California Rental Property Empire
California attracts renters from all over the world, from tech professionals, students, to entrepreneurs. They’re also willing to pay top dollar for rentals. This trend has allowed real estate investors to grow their ventures with additional rental income.
Rental properties aren’t the same as flipped homes. Consistency and stability are essential for profitable rental properties.
You need adequate funding to pay for property management, tenant processing, maintenance, repairs, and applicable legal fees and permits. If you want to own multiple rental properties, you’ll need a stable funding source by your side.
Fortunately, hard money loans aren’t just for fixing, flipping, and building homes. There are loans specifically for rental properties, so real estate investors can buy and maintain rental units quicker.
How to Choose a Hard Money Lender in California
Are you ready to get a loan and grow your real estate inventory? Take these necessary steps, so you can find the right funding for your needs.
Start by choosing a lender that specializes in the needs of real estate investors. A general hard money lender may not understand the nuances and trends of the real estate investment industry.
You may also find yourself stuck with higher interest rates with a regular hard money lender. Lenders who accept bad credit applicants tend to have higher interest rates than lenders who work with decent credit. The higher the risk, the higher the interest rates.
Go over the loan terms with a fine-toothed comb. Your lender shouldn’t burden you with excessive fees. Look for hard money lenders with flexible loan terms and interest rates between 8% and 14%.
Specificity is key. A general hard money loan may not adequately cover the needs of your project, especially for ground-up construction. Look for lenders that offer fix and flip loans, bridge financing, ground-up construction, and financing for rental properties.
For short-term loans, you need funding that covers at least 6 months’ worth of financing. You may need 12-month financing for larger projects or multi-property deals. To ensure you’re applying for the right loan, clarify your investing goals beforehand.
How to Apply for Construction Loans in California
If you want to streamline the loan process, have your important documents ready. Your lender will need bank statements, any funding sources, credit check, a summary of your real estate investing experience, and a project proposal. You want a lender who cares about these details.
Good lenders want investors to be successful, and that requires a fast and reliable approval process. This also includes a fair quote estimate for the loan. All investors should receive a quote after applying.
Once approved, your lender will need an appraisal and property insurance verification to underwrite the loan. After the loan underwriting process is complete, you’re free to fund and grow your real estate venture.
Discover the Right Funding For Your Real Estate Project
You have big real estate dreams, and you’re in the perfect state to kickstart your empire. Make sure you have adequate funding to grow and scale your business. Follow these tips to discover the right construction loans for your needs.
If you’re ready to build now, don’t wait to take the first step. Contact us today to talk to a lending specialist who can get you the financing you need to grow.