Ask Cornerstone: Will my Business plans of building four quality built cabins on my land increase my chances of finding financing?

business plan for building construction financing

I own the land in Maine near a major city with a value of about $42K. For a cost of about $200K, I can build four separate cabin units.  The makeup of the surrounding area should support this plan with the colleges and a hospital nearby as well.  A possible business model would be to run it like a motel of short term fully furnished housing. It would bring in about $60K a year, at 30% occupancy, to upwards to $200K. Cost of running would be estimated around $36Kon the low end. Another business plan is rent it as monthly housing  to bring in about $6K a month, which would well cover a loan and cost.

 The value of finished units would be around $500K-$600K, so the resulting equity after the project would be high.

Will these factors increase my chances of finding financing for the project?

Based on your figures, you should be able to get construction loan and a takeout financing from a local bank as long you can support your costs and projections click for more info. To improve your chance of success, first find out if you could subdivide the land into 4 separate lots. If that is not possible, the project still makes sense. Next you should talk to the local bank and find out what they need in loan request package. Naturally you should have well prepared loan request that including at least the following:

  1. Job cost estimate prepared by a license contractor that is familiar with city requirements,
  2. Rent study of the area so you can support the rents in your plan,
  3. Market study showing that if the units are sold bank would be paid off and you would make a decent profit, and
  4. Your financial statement showing your income, net worth, cash reserve etc.

If you get “go ahead” from the bank there will be some conditions like the following:

  • Have permit ready plans. That cost most likely will have to come out of your pocket.
  • Obtain a signed bid from reputable general contractor showing a total cost of the project.

This is just general approximation and true requirements might differ and be more demanding.

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