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The nation of Canada has a good problem on its hands. The real estate market simply doesn’t seem to know when to quit. For the last several years, the demand for new housing has far outpaced the supply of homes, apartments and condos. Indeed, in several cities, those people who decide to build apartment buildings or a community of condominiums often find their available units rented or sold before the final stud is in the wall. It’s extraordinarily lucrative for those people willing to invest in the new construction of multi-unit buildings.
You just have to know how to get the construction financing you need to move forward.
So, in order to help you get started on the path towards great construction financing, we want to offer you a free strategy call at the link below to go over your options.
Multi-unit buildings are the future
If your investment portfolio has focused primarily on single-family homes up to this point, it’s time to rethink the multi-unit approach. Here are three quick reasons why:
- Every day, Canada’s urban centers are getting more and more crowded. What’s more, the people who occupy the nation’s cities refuse to sprawl as much as was expected. Even as the available space dries up, cities are noticing higher and higher concentrations of people.
- Several million Canadians (and potential ex-pats) are heading into retirement. When the kids are out of the house, and retirement looms, the natural choice for most homeowners is to downsize. That means selling their detached single-family home and moving into a smaller space. Often, that smaller space is an apartment or condo.
- A lot of millennials are foregoing traditional home mortgages in favour of renting in multi-unit buildings to remain close to cultural outlets and retain the convenience of big-city living.
All of those reasons add up to one logical conclusion: the market for multi-unit buildings is hot, and it looks to stay that way for several years to come as developers struggle to meet the enormous demand.
Residential or commercial?
When entering the world of multi-unit buildings, it’s critical to understand the distinction between residential real estate and commercial real estate. As you may have guessed, residential real estate covers nearly all properties where someone might live. The operative word, here, is “nearly.” Meanwhile, commercial real estate covers any property where someone might start a business or build a product. That sounds simplistic, but the distinction between the two isn’t so cut and dry.
Let’s go back to that word: “nearly.” In the world of Canadian real estate, residential real estate covers single-family homes as well as individual condos and apartments. Residential real estate also covers multi-unit buildings, but only up to four units. Any apartment building or set of condominiums that is five units or larger constitutes commercial real estate.
As such, when you’re about to seek out construction financing, it’s critical to know if you’ll be pursuing funding for a commercial or residential real estate property. You can make that determination in one of several ways. You can look at an area’s given population density. Generally, it goes high density, high buildings versus low density, small buildings. You can research the last several multi-unit construction projects to see if you can spot a trend. Are multi-unit buildings getting taller in your area? Are they generally capped at one height?
Those are just a couple of the questions you can ask yourself to help you pinpoint the right multi-unit project for you. Once you’ve found the right building, here are some strategies to help you secure financing.
Discover Buying An Apartment Building With This Step By Step Guide
Know your value
Before you can ask for a certain amount of construction financing, you have to know how much your building is worth. That means factoring in the location, level of maintenance, size, age, current monthly income and the amount of money you’ll need for repairs. You should have your findings confirmed by a building inspector and a real estate agent before you move forward.
Plan for contingencies
If you’re searching for construction financing to build a multi-unit building, the odds are this isn’t your first real estate investment project. As a result, you probably know this invaluable lesson: always have some liquid assets on hand in case of emergency. When you’re headed toward new construction, unexpected occurrences are the name of the game. It’s best to plan ahead for them.
Don’t go in alone
Structuring a construction financing loan is one of the most challenging real estate processes you can take part in because there are dozens of factors that play into constructing a new multi-unit building. Most of them, you, as the developer, will have zero control over. As a result, construction lenders look for experience when they consider approving a construction loan.
It’s one of the most often repeated words of advice you’ll hear in the rental investment game: find a team you can trust. In typical real estate investment, that means finding the right real estate broker, agent and lawyer. In many cases, it also means finding a partner with some prior experience (or a steady source of income). When diving into new construction, you will also need to enlist the help of a contractor or construction management firm with a track record for success.
For Construction financing, we recommend our team at LendCity Mortgages.
Alternatively, click the link below to book a free strategy call to discuss construction financing options today.
Choose a fixed-price contract for construction financing
Another way to wow a potential lender is to negotiate a fixed-price contract. Just as the name implies, in a fixed-price contract, the amount paid to the construction management company doesn’t depend on time delays or material cost overruns. Instead, the borrower (that’s you) pays the construction management company a set price to complete construction. If you’ve chosen a reliable contractor, that arrangement shouldn’t be an issue.
While a fixed-price contract may cost more on the front-end than the alternative, it substantially lowers your financial risk, as well as that of the lender. In short, a fixed-price contract provides a sense of security that the alternative cannot.
Getting the cash to fund new construction doesn’t have to be hard, as long as you know your options—and now is the perfect time to get in on the hot housing market.