Investing in construction loans can be highly profitable for hard money lenders. But, it is important to know a few key details before considering investing in a construction loan. One of the first things investors need to really understand is how the loans work and how lending money in new construction can make copious amounts of money. How Do Construction Loans Work? First things first. New construction loans are not the same things as mortgages. These loans are short-term loans assigned for the amount of time required to build the home and covering the costs of doing so. This is a total package or stand-alone construction loan. Once the construction period ends, borrowers will either refinance the construction loan into a mortgage loan, …show more content…
Getting More Mileage from Construction Loan Investments Investors considering construction loans should consider doing so in areas they know extremely well rather than take unnecessary risks by investing in far away communities that may have areas where investments aren’t as lucrative and have greater risks of failing. Working locally for hard money lending on construction loans also helps to ensure that investors know the area more intimately and can gauge whether it is an area of growth or decline – which can substantially affect the potential reward of the project. Other key details to consider when lending money for construction loans as a private lender include the following: Make sure you hold a senior lien position on the loan. The lien position effects the order in which you receive payment if the construction project fails. Only lend to seasoned investors who have several successful projects under their belts. Investing in real estate is all about hedging bets. It’s true, new real estate investors or builders could be successful as well, but they represent a sizable unknown that could destroy your return on