The new construction market has seen an uptick in recent months, fueled by a boom in new housing starts that’s expected to continue throughout the rest of the year. New construction is becoming increasingly popular with investors because it gives them a chance to provide much-needed housing to underserved markets, while also offering them a healthy ROI. For brokers and wholesale lenders, new construction presents a great opportunity to reach a growing class of investors and close more deals as well. It also helps to stay ahead of the curve, understanding the trends affecting the market and how to navigate them effectively.
Continue reading for a quick update on the state of today’s new construction market, and how brokers can capitalize on these trends to close more deals in the coming year.
New construction projects have always been a viable investment strategy, because the cost of labor and materials used in building a home is often less than its final sale price. As supply line constraints from the pandemic raised the price of building materials, there was a significant dip in new construction starts in the following years. Recently however, new construction has seen a strong bounce back, driven by the lack of housing supply in many markets and a large migration from cities to suburban areas.
This shift has created massive potential for investors who are looking to capitalize on the new construction wave. Rising rent prices have made build-to-rent an increasingly viable strategy, but even new construction home flipping can be very profitable. It has also created a great opportunity for brokers and lending partners who are prepared to connect investors with the right financing options.
Brokers can benefit greatly from adding new construction programs to their loan offerings, as it opens the door to a new asset class and new clients along with it. For starters, new construction projects typically require larger loan amounts, and this means better commissions for lending partners. These borrowers will often go on to seek follow-up financing as well, in the form of refinance and portfolio loans. Today, there is strong demand from investors looking to scale their portfolios, but who are held-back by the low inventory market environment. By offering new construction programs, you can position yourself as a comprehensive financing provider with a creative range of loan solutions, not just a mortgage broker.
Understanding the key differences between new construction and conventional loans will help you educate your clients and recommend the most suitable option for them. First, know that there are two varieties of new construction loan, construction-to-permanent and construction only, depending on the exit strategy of the borrower. With new construction loans, lenders typically disburse funds in a series of draws, each dedicated to a specific purpose. For this reason, it’s important that borrowers have a solid plan for their construction investment, and a detailed budget with line items dedicated to each part of the project.
New construction loans from private lenders offer more speed and flexibility than conventional mortgages. They have less stringent application criteria which helps them get approved faster, a key advantage in competitive real estate markets. However, since there is no collateral to back the loan, they also typically come with higher interest rates than their standard mortgage counterparts. Be sure to highlight these differences when discussing loan options with your clients to ensure they are well informed.
The key to closing more new construction deals is developing a strong marketing strategy. First, identify investors and the exact demographic for the clients you are looking for. Connect with these clients and educate them on the benefits of building vs. buying property in today’s market. Offer them valuable market insights and financial advice to build trust, helping you become their go-to source for all things real estate related. After that, it’s just a matter of connecting them with the best financing options. Be sure to partner with a reputable lender who has experience in new construction, as these lenders will offer better rates and terms, and can provide partners with additional resources to ensure investment success.
As a private lender that specializes in funding real estate investments, RCN Capital is ready to guide you and your clients through the new construction financing process. Along with having years of experience funding new construction deals, we offer fast approvals and simple draw schedules supported by a dedicated servicing team. We offer all lending partners several benefits including white-label loan brochures, marketing materials, and competitive compensation. We also offer our brokers free resources like Amplify, our self-guided online training platform, and BLN software, our loan management system built specifically for brokers to simplify and streamline the lending process.
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 finance a new construction project, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.