How Brokers Can Maximize Profit from New Construction Lending

New construction investing is becoming an increasingly viable real estate strategy, especially when you consider today’s low inventory market environment. These investments offer owners a way to capitalize on high demand areas, and real estate partners like you can also see a benefit from new construction. Positioning yourself as an expert in this asset class opens the door to a new client segment, which is sure to lead to more business.

Are you thinking about adding new construction programs to your loan offerings? Continue reading as we cover the ins and outs of this asset class and how brokers like you can benefit from offering new construction loan products.

Understanding the New Construction Lending Landscape

Let’s start by quickly covering the basics of new construction financing. Construction lending can be an umbrella term that covers both “fix and flip” or renovation loans and ground-up construction. For today’s purposes we’ll be focusing on the latter, or new construction loans. New construction loans have a much shorter timeline than conventional mortgages, ranging from 1-2 years. Lenders disburse funds in a series of phases called draws, with each draw dedicated to a different part of the construction process.

There are two main types of new construction loans, construction-to-permanent and construction-only. Construction-to-permanent loans offer borrowers an easy way to transition to a 30-year mortgage, and can even save them money in closing costs. It’s ideal for investors who plan to rent a property out after building it. Construction-only loans, as the name suggests, only cover the material and labor costs of building a property, and are ideal for investors planning to resell the home.

Why New Construction is a Goldmine for Brokers

The new construction space can be very profitable for financing partners. Newer properties tend to be more expensive, and the commissions that come with these projects are also larger. There are also less competitors that offer new construction, which means you can capture a greater market share. Additionally, the types of investors that plan new construction projects tend to go on to build multiple homes, which means more repeat business opportunities. By positioning yourself as an expert that understands the needs of new construction investors, you can become an indispensable partner to these clients.

How to Position Yourself as a New Construction Lending Expert

So what does it take to become a new construction financing pro? Mastering the process means understanding each step in detail, from land acquisition to sale. This also includes the legal aspects of new construction, like permitting, inspections, and title search. Once you have experience in the space, you can provide clients with education as an added service. Market yourself as a new construction specialist, and develop a streamlined system for getting these projects funded for clients.

Being a new construction loan expert also means offering the right loan programs. You should aim to work with lenders who specialize in new construction lending, as they are more likely to understand the importance of speed in these transactions. This helps ensure a good experience for your clients, and they’ll be able to complete projects faster, leading to better returns.

Pro Tips to Maximize New Construction Profit

New construction investments can be incredibly profitable, especially for brokers who specialize in them. Promoting these projects as a wealth-building strategy helps investors diversify their portfolio while netting a great return. You can help your clients find success, and keep your pipeline moving, by staying involved in the construction process. Work closely with your lender’s servicing team to make timely draw requests, and encourage clients to be mindful of their project timeline.

Want to maximize your profit per deal? When appropriate, encourage clients to build multifamily properties. Multifamily homes often sell for more, and have better cap rates than their single-family counterparts, which makes them great investments. It also means you can benefit from higher commissions.

Partnering with the Right Lending Partner

Choosing the right lender is crucial to your success in the new construction space. A solid partner will be able to improve your client’s experience and increase customer retention. Ideally, your lender should have experience with new construction financing, so that they understand the importance of speed and flexibility when funding these projects. Look for lenders that offer competitive rates, superior customer service, and have good reviews. Lenders that go above and beyond will also offer additional services, like educational materials on their products, and free resources to help broker partners close more deals.

RCN Capital

The best way to save on a real estate investment is to obtain financing from a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate professionals. If you are looking to offer construction financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.