Ground-Up Financing: What is it and how does it work?

Ground-Up Financing: What is it and how does it work?

January 12, 2024

When faced with an opportunity to develop a vacant piece of land or to renovate a run-down property that requires massive rehabilitation, real estate investors have the option to secure a Ground-up Financing from private lenders like Longleaf Lending.

A ground-up construction loan is a streamlined funding solution for those who are looking to build a new construction project from the ground-up, but for one reason or another, cannot wait for the lengthy and stringent processes of securing a bank loan.

The funds may be used to acquire the land and pay for construction costs for single family homes, townhomes, or 2-4 units of multi-family developments.

 

How is a Ground-Up Loan different from a Fix & Flip Loan?

Ground-up financing is specially designed to help investors and developers with ground-up construction projects. With a higher loan value of up to $3.5M, the Ground-Up loan is better customized to fit the purpose of a new construction.

Take a look at the difference in the loan terms between the two:

Ground-up Construction

Loan Value: $150,000-$3,500,000

LTV: Up to 70% ARV

LTC: Up to 85%

Interest Rate: 12-13%

Points: 1-3

Term: 6-12 months

Closing Time: As fast as 2 weeks

Rehab: 100% financed

FICO: 660 minimum

Fix and Flip Loan

Loan Value: $75,000-$750,000

LTV: Up to 70% ARV

LTC: Up to 95%

Interest Rate: Starting at 12.5%

Points: 2.5 – 3.5

Term: 6-12 months

Closing Time: As fast as 48 hours

Rehab: 100% financed

FICO: No minimum

What are the differences between ground-up construction and renovation?

A Ground-up construction gives the real estate investor the chance to build from scratch, enabling them the flexibility to decide on the design and materials instead of simply working within the limits of an existing structure. You will have the capacity to build a home that meets the latest trends or innovations in design and make use of materials that will make the property more attractive whether you choose to sell or rent it out.

But with the freedom and flexibility comes a higher cost because building from scratch means you will have to build everything—foundations, walls, and everything else. With renovations, it is more affordable and faster because the structural work is already done. This also means that getting building permits are easier.

With a Ground-Up Construction loan from Longleaf Lending, you can go either way: you can use the funding to build from scratch or you can use it to secure a loan for properties that are in a state of disrepair. Since there are no strict limitations on the property type and condition, you can use the loan to develop a vacant piece of land or for fix and flip projects that require an extensive amount of rehabilitation and even significant vertical or horizontal additions.

So, how does the Ground-Up Construction Loan work?

We’ve already covered the basics above, but just to reiterate that the Ground-up Financing is a short-term loan, unlike traditional mortgages. Structured specifically to cater to the needs of a real estate investor, the ground-up loan will help real estate investors make a quick turnaround on their investment.

The approval process for a Ground-Up Construction is more thorough than the Fix & Flip loans and closing would take up to 2 weeks unlike the usual 48 hours for Fix & Flip loans. As soon as you have submitted your request for pre-approval, one of our loan officers will guide you on the necessary requirements to help push along your loan application.

Recently Funded Ground-up Construction Projects by Longleaf

Here are a couple of ground-up construction projects recently funded by Longleaf Lending in the state of Texas.

Longleaf Lending is a veteran-owned private lending company based in Texas, USA. Funding more than 600 hard money loans with US$125+ in loan value, our team is highly confident that we can provide real estate investors with fast, efficient, and reliable financing whether for Ground-up Construction, Fix and Flip, Long-term Rental loans, or Multi-Family. 

When you request a loan, we will assign you to our loan officers who will assist you with the entire process. Talk to us today or email us at info@longleaflending.com if you have any questions.