5 Crucial Mistakes Builders Make

5 Crucial Mistakes Builders Make

Before Taking a Construction Loan and How To Avoid Them

Not getting pre-qualified

Mistake #1

It really boggles the mind when someone signs a contract without prior consultation and pre approval from a funding source. People often times put the cart before the horse. Before you start making offers on land, get with your local private money lender and get pre-qualified. Even get yourself a proof of funds letter. That way you’re a “bona fide” cash buyer. Do you know how much better your deal offer looks when you can tell the seller that you’re an all CASH buyer and can back it up with a loan commitment from the lender? The difference is night and day and your offer moves to the front on the line regardless of whether if it was the highest offer. The best deals come to buyers from sellers who can move fast for one reason or another and want to close NOW!

Worrying about the interest rate.

Mistake #2

Let’s face it, when you first hear the interest rates that Private/Hard money lenders charge for their services, thoughts of the mob and loan sharks are conjured up. How do they get away with charging such high rates? The fact is that the rates are not really that high considering the risk they take and the terms of the loan. The average investor loan is only 120 to 180 days to complete and sell. This is temporary parking at best. Lenders provide you with the bulk of the capital to make your investment deal work and often times some very good insight based on their experience while taking most of the risk. This is the cost of doing business and a small one at that, and it is fully tax deductible against capital gains.

Look at it this way. Think of it as access to easy high leverage low effort capital to fund your projects. It allows you to do the most important part of your job, which is to allow you to find and fund more construction deals. How many deals could or would you make if you never had to worry about your funding source?

We look at hard money lenders as co-advisors of your project and estimate of value. If they don’t think you got a good enough deal, they’re not going to lend you any money. What a good way to feel safe in your purchase, getting a “stamp of approval” by another experienced investor. Think about it? How much would you pay for advice to avoid losing $25k on a deal, because of something you missed that the lender noticed? We all understand that investing is not without risk, but the more “eyes” on the deal the better.

Not building a solid relationship with your local Private/Hard money lender.

Mistake #3

Setting up and establishing a good rapport with your Private lender that knows the area and that can close quickly is absolutely vital. I cannot stress this enough. This is a relationship business where all interests must be aligned. A good local lender is paramount to your success. Some of the larger national companies that lend from far away take far too much time to efficiently process a loan request and are too unfamiliar with the local variances that each neighborhood offers to be effective, often times leading to delays and no funding at all in the end. Getting good deals in real estate is a fast action business and requires local boots on the ground. Plain and simple. While you still may need an appraisal for the file, most local private money lenders can just drive by a house and tell you yes or no upfront. That information and evaluation is invaluable in many ways, something a long distance lender (and you by extension) can be fooled by bad comps. Wouldn’t you rather have a local expert, willing to put their own money up, tell you if your deal looks viable or not?

Failure to plan for contingency funds

Mistake #4

Contingency funds or cost overruns should be added to the budget and loan amount. It is not uncommon for construction to run over budget. For this reason some lenders like to have an additional 10-15% allocated to overruns added to the total budget and loan amount to make sure they can cover unexpected issues. If these funds are not used, often times the borrower does not have to pay interest on them unless they are advanced. Even if the lender has set aside a contingency for the budget, the borrower should also be prepared to spend a little more than planned. Construction budgets tend to run over and it is very difficult to secure funds with construction started.

5. Not getting started right away.

Mistake #5

Investing in real estate is an action oriented business and an excellent way if not the best way to build wealth and financial independence. Most people never start because they think they don’t have the money to buy a house or the wherewithal to ask for help and get partners and mentors to assist. Don’t let these thoughts hold you back

Kenwood Mortgage Investments Apply Now!
Follow Us

Kenwood Mortgage Investments

7950 East Redfield Road #110, Scottsdale, Arizona 85260

MB #13866 | NMLS #170223


I want to welcome you to Kenwood Mortgage Investments. We are a 26 year old family mortgage company that makes real estate loans that the banks or traditional lenders don’t do, or they don’t do fast enough. Think of Kenwood as a reliable source for $50,000 to $5,000,000 by Friday.

Sometimes we really do work that fast, and we’ve been doing it for more than 26 years. Now, we compete with banks, but when the value of speed and certainty outweigh the cost of funds, then Kenwood is the lender for you.

What we do is known in the industry as hard money, some call it private money. And while it may seem that we only do one thing, you might be surprised by just how diversified our appetite for loans are.

At Kenwood, we finance all types of investment real estate including, residential, commercial, construction and even land. Once we get our arms around a property’s value and believe the borrower has a viable plan for success, we’re going to offer to make that loan and we close most of our loans within 24 to 48 hours of receiving a preliminary title report.

While we finance just about every type of investment real estate, we also fund loans for just about every type of borrower as well. We’ve made loans not just to individuals, but to LLC’s, corporations, trusts, partnerships, you name it. We can also make loans secured by multiple properties in order to maximize the loan amount.

We invite you to spend time on our website to get further acquainted with who we are, if you have a transaction that needs funding now, the best thing to do is just call us in Arizona at (480) 783-8800. You’ll be talking with a principal decision maker and within just a couple minutes of our first conversation we should be able to chart a path for how to get your transaction closed, quickly.


Kenwood Mortgage Investments