Construction Loan Finance via Real Estate Crowdfunding platforms

Construction loans via crowdfunding platforms are emerging as a new source of funding for major construction loans, including residential, apartment, commercial, hotel and renovation projects and also home buyer can invest in real estate through crowdsourced websites. By listing a new building or commercial development on a crowd based finance such as CrowdfundUP, the wider public has the ability to invest in these building projects - providing a new type of funding outside those traditional methods such as banks.

• Know What is a construction loan & How it works?
• Advantages and Disadvantages of Construction loans?
• Construction loans process with Crowdfunding platforms
  

What is a construction loan & how do they work?

If you plan on building your next home instead of buying an existing one or renovation then home owners or property developers will needa construction home loan or financing a renovation loan.

If you're looking to build your home instead of purchasing an existing one, then homeowners and property developers will need to consider construction home loans or financing a renovation loan.

Construction loans are specialised lending options for property groups to help them through the process of constructing a new commercial asset or residential property. These can be construction loans or home loans that have a construction facility. When doing a major renovation or building a new home, finance needs are different than when you are buying an established property.

・Term

When thinking about a construction loan, the construction process needs to be taken into account, as interest is paid on progress payments for your mortgage, so it's important to know how long it will take. Some builders are happy to guarantee a specified timeframe for the construction process. Others are a little more ambiguous about how long the build will take.

・Example

Owner-builders will outline how much money is required to build a commercial property development, segmenting expected costs into intervals of work. Each progress payment throughout the construction phase is called a drawdown, and interest is only charged on the amount drawn down at the time interest rate is calculated.

For instance, if you have approval for a $250,000 loan but have only drawn down $80,000 – you’ll only be charged interest on that $80,000 until you make further drawdowns. You will receive it in steps throughout the stages of construction.

Depending on the loan and lender, at the end of the construction period your loan can either revert to principal and loan interest or you may be able to keep it as paying interest only.

Who needs a construction loan?

Construction loans are suitable for any borrower intending to build a new home loan or commercial real estate project on a vacant block of land. This includes buying a house and land package from a licensed builder or conducting major renovations to an existing home, such as adding new rooms.

Property developers for small-scale developments may also use construction loans, but these may only be available if you're building under a certain number of properties. If you're building a larger amount of properties (usually over four) most lenders will consider this to be larger-scale development, which will require commercial finance instead.

Advantages and Disadvantages of Construction loans

Construction loans are a short-term financing option that can help you pay for construction costs when you build a new structure or add on to an existing structure.

The Advantages:

・Protection: Construction loans ensure that builders and contractors are only being paid for the work that has been done and not being paid for work to be completed

・Availability: A construction loan helps ensure you get the money when you need it, but doesn’t accrue a lot of interest because it is short-term

・Structure: Clear timelines of construction and detailed plans add scrutiny and structure to the process, assisting a project stays on budget and schedule

・Lower repayments: As interest payments are only being made on the loan, these loan payments will be lower, assisting with cash flow while the work is being carried out

The Disadvantages:

・Deposit: Loan to value ratios (LVR) are higher, especially if you’re an owner builder and managing the work yourself, so you may need a chunky deposit.

・Risk of Higher Rates: Interest rates on a construction loan can be higher than the rate than any of banks or lenders. This is for several reasons, including borrower profile, the existing condition of the property, riskier investment and the availability of short-term funding. Though typically this reverts back to the standard rate once construction’s completed.

How to Get a Construction loan with CrowdfundUP?

Getting approved for construction loans for a real estate project is much faster when investors choose an established, alternative finance platform to facilitate the construction process.

1. Online Application process
2. Discuss the property and loan details
3. Create a new funding project
4. Investors browse and review
5. Raise capital for construction financing
6. Receive funding for the construction projects

Benefit of the Commercial Real Estate Crowdfunding loans :

• The ability for any property development company that has passed the due diligence process, to put up a project that will create public value;
• All investors are deciding which projects are worth investing with their Digital Wallets;
• Showcasing promotional and sustainable projects, lending networks and adding social proof to concepts;
• Accessing wider Investor networks via online platforms;
• Transparency of short-term investment opportunities.
• Construction application process with Crowdsourced platforms

Commercial construction financing for a building project is much faster when investors choose an established, alternative finance platform like CrowdfundUP to facilitate the construction process.

Access to New Construction Finance and Servicing

Considering construction loan options? Raising capital for a real estate project is much easier when accessing capital via an extensive online network.

Our technology allows for the real estate crowdfunding platforms to match your project or construction loans to the most suitable source of funds

Get access to our crowdfunding loans for your property development.

Related article

• Bridge loans through Commercial Real Estate Crowdfunding
• Why Property Developers are attracted to Crowdfunding

The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.

Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.