The Single-Family New construction Loan Life Cycle

THE “SINGLE-FAMILY NEW CONSTRUCTION” LOAN INVESTMENT LIFE CYCLE – OVERVIEW:

1. A local custom home builder has an idea for a “new construction” project to build a custom 4,500 Sq Ft 4 BR/3.5 BA custom home. The builder then finds a premium 2-acre lot in a gated subdivision where high-end homes are built and sold. After he secures the lot under contract, his construction permit is approved, he concludes his due diligence, and a formal loan application is submitted to BCCG.
2. BCCG performs complete independent due diligence for the subject property (and the proposed buildout), which involves obtaining a title report, home inspection report, construction estimate, and an “after-repair-value (ARV) appraisal.
3. The exhibits are compiled into a formal “investment summary” for review and consideration by BCCG’s group of registered private investors.
4. BCCG successfully obtains executed Loan Participation Agreements from the investors.
5. As per the investors’ investment participation commitment, they deposit their participation funds into the escrow account at the title company, closing the investment.
6. BCCG obtains “escrow clearance” from the title company’s escrow agent, stating that the investment participation funds have cleared escrow. BCCG’s attorney then drafts the loan closing documents and schedules the closing.
7. On the loan closing date, the investor’s participation funds are released out of escrow to fund the investment according to a predetermined disbursement schedule agreed upon between BCCG, the title company, and the general contractor. NOTE: BCCG uses a third-party construction project disbursement management company for “funds control” to manage the disbursement schedule to the general contractor.
8. According to the executed “construction management agreement” with the builder, the general contractor oversees the rehab project.
9. The subcontractors contribute their respective labor toward the rehab project as it progresses to completion.
10. The rehabbed home passes inspection and obtains a certificate of occupancy, which is necessary to market it for prompt sale. Additionally, the home undergoes interior design/decorating, exterior landscaping, and staging.
11. Meanwhile, the loan servicing company collects the builder’s monthly investment payments (from escrow).
12. The collected funds are disbursed to the investors according to their pro rata stake in the new construction commercial mortgage note.
13. Several aggressive marketing and promotional campaigns led by the real estate agent/broker generate several “walkthrough” tours by several interested, qualified, and motivated potential homebuyers.
14. The successful marketing efforts of the home tours result in a couple entering a contract to buy the house (at the builder’s negotiated price) through the real estate broker.
15. On the day of closing, the house is sold to the buyer, and they obtain both the deed and the keys to the property.
16. The title company transfers the cash proceeds of the sale (sufficient to pay off the principal loan investment amount PLUS the contractual due-on-sale interest payment) to the loan servicing company.
17. The loan servicing company remits the payment of principal investment with interest (the investors’ due-on-sale premium rate of return).
18. The title company remits the remaining proceeds from the sale to the homebuilder.
19. The builder returns to BCCG to finance their next project, and the loan investment lifecycle repeats itself.

A picture is worth a thousand words. See the corresponding flowchart below.