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A construction loan is used to finance the construction of improvements on real estate such as homes, apartments, and office buildings. The lender commits to the full amount of the loan, but disburses the funds in payments (draws) during construction. Draws are made to the owner or general contractor for that part of the construction work that has been completed since the previous payment. Before each payment, the lender inspects the work. The general contractor must provide the lender with adequate waivers that release all mechanics' lien rights for the work covered by the payment.
Construction loans generally bear a higher-than-market interest rate because of the risks assumed by the lender. These risks include the inadequate releasing of mechanics' liens, possible delays in completing the construction, or the financial failure of the contractor or subcontractors. Construction loans are generally referred to as short-term or interim financing. The borrower pays interest only on the money that has actually been disbursed. The borrower is expected to arrange for a permanent loan, also known as an end loan or take-out loan that will repay or "take out" the construction financing lender when the work is completed. Some lenders now offer construction-to-permanent loans that become fixed mortgages upon completion. At this time, Real-Estate-Proforma.com is not affiliated with any construction lenders. Please visit this page again soon for updates.
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Determine the Real Estate Financial Statistics for a PropertyBefore you buy an investment property it is critical that you create your own projection of the property's profitability. Real-Estate-Proforma.com has a quick-proforma with which you can calculate real estate financial statistics such as Internal Rate of Return, Capitalization Rate, Cash-on-Cash, Debt Multiplier, Loan-to -Value Ratio, Debt Coverage Ratio, and Mortgage Payments. You can use this JavaScript proforma to project the profitability of a real estate project. By becoming a member you will receive access to a number of Excel real estate proformas. membership | services
If you are analyzing another person's proforma, or you are examining a prospectus for a real estate deal, it is very important that you read the document carefully and determine how the values of the financial statistics above are being calculated. For instance, values such as the Cap Rate may be determined from overly optimistic projections of the future rental income of a property.
You can "reverse engineer" the financial projections you receive from a prospectus and/or request the Excel (or other type of) spreadsheet a developer used to create their proforma. A very useful Excel or Visual Basic macro used to check Excel formulas is available in the spreadsheet below for download. Download Mortgage Formula Excel Spreadsheet
The due-diligence you do on a potential investment may uncover a number of potential problems with a real estate deal and we suggest you research each real estate investment very carefully. There are a variety of real estate financial consultants who can help with this, but if you are like many Real-Estate-Proforma.com members, you can or are learning to do your own due-diligence.
We hope you become a more successful real estate investor by using this site! membership | services