Some things to look for are what are known as “horizontals”. These are structural amenities local to the site of the planned build such as paved roads, power lines, and water lines. These prospects can look like an undeveloped lot in an existing suburban neighborhood, or what is known as an “In-fill” in more Urban settings. In-fill projects position a new build where there is already set infrastructure. Choosing to build on a parcel of land where horizontals are already in place can make it easier to establish plans and permits for the build. Local horizontals can also make it easier for the investor to acquire funding as well. Lenders are aware of the difficulties and up-front costs of developing horizontals in an area where there are none, and these developments can be seen as a detriment to the deal.
Often times it is easier to find areas with well-maintained horizontals in place in less rural areas. Lenders may favor financing deals in urban or suburban areas for this very reason while dismissing builds for more rural properties.
Plans and permits in place
Without plans and permits, a new construction deal is dead in the water. To investors, the notion of having to keep things, “up to code” is no new concept, especially those with experience renovating and flipping houses. For newly constructed residentials the same is true, but the parameters are much more strict. Plans and permits have to be in place before building can begin and often before funding can be secured. These documents are standard across US housing markets, such as zoning verification letters, zoning compliance reports, or entitlement letters, but the standard of compliance to which they are held will always be relative to the local municipality in which the project will be built.
Bureaucracy takes time, and acquiring these permits and approvals for new construction is no different. In order to keep to a desirable building schedule it will be imperative that investors keep on top of documentation and apply for permits and approved plans in a timely manner. Despite the best laid plans an investor who is working with a lender for financing may find they do not have plans and permits approved prior to closing. In cases like these, the investor may be able to seek verification on proposed plans from a third-party architect who works in the local municipality. Similarly, Investors may seek confirmation of proposed plans from a local council where ordinances allow. Being aware of these and other options available to the investor can be essential in securing funding for the build.
Many lenders will take investor experience into consideration for new-construction projects. An investor seeking capital for a new construction project may find that certain lenders will want to see that the investor has prior experience in construction, or at least rehab, real estate projects. This is where having an experienced builder or general contractor comes into play. General contractors can be reviewed for qualifications including up-to-date licensing, verified references, and project history to ensure that the project can be completed (on time and on par) up to code and compliance.
