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What is up my pro design builder family? I'm Sam, also known as the Pro Design Builder. I'm the best in the business and it's not even close. Uh in today's video, we're going to be covering how to get approved for construction loans, even if you're not even if you haven't done a development project yet. Specifically, in this video, I'm going to be covering four different areas. Um, what is a construction loan? What lenders are really looking for, uh, what you must have before you apply, and why most people get denied. All right. So we're gonna really dive deep into the subject topic. One of the things people always ask is how do I get deals funded? How do I get deals funded? And the easy answer and the simple answer is through a construction loan, right? So, funny story, the first time I seen a construction loan, it was actually massive. I was actually brokering a deal for a developer, which was a friend, but this was a massive developer uh out of Manhattan, and he was looking to build a 32-story high rise uh in downtown Fort Lauderdale, and I had the uh front row seat as the broker. As I've said before, I've had I've worn several different hats, I've been on all sides of the table, and on this particular deal, uh the the I mean the purchase price of the land was about seven and a half million dollars. And the when I saw the it the analyst had put together the performa, right? So massive developers typically have analysts uh at their disposal that can crunch the numbers quickly and get a real projection, which is something that we're gonna be talking about in this video, uh, very quickly on if the deal pencils or not. So his analyst sent sent over the um the performer to me. I had a chance to take a look at it. Um the the I'll tell you just tell you some of the numbers. I think the construction loan was about $58 million. The way that the loan was structured, the uh uh institutional capital uh had another you know 20-something million in it, and then it required him to be into the deal for seven and a half percent. Uh, so he had to raise that that additional seven and a half percent to close out and make the whole deal work. So that's kind of how that particular deal worked. But you know, looking at the cons construction loan was I was like, they're giving out loans that big? And yes, they actually preferred to give out those type of loans versus you know smaller loans, right? And the the way that the performance was set up, it was an amortization schedule on when payments would begin, and then you know when it would conclude, and then their exit strategy, etc. It was a very clear picture and it was very eye-opening as well, because that's that's where banks prefer to lend their money, they prefer to lend their money to developers, they don't prefer to do twenty thousand dollar loans, they don't prefer to do two hundred and fifty thousand dollar loans, they prefer to do bigger deals because now when they're looking to make um uh a profit make on on the interest that that you pay is substantial, right? So that's the name of the game. So, but before I dive in, I'll just tell you a little bit about me. I'm Sam, also known as the Pro Design Builder. Uh, I've been a design builder and a contractor for the last nine years. So I've bought homes, I've sold homes, I've flipped homes, I wholesale homes, I develop for uh developers, I've developed properties, I've been a broker, I've I've done so many different aspects of this business. So I bring a different flavor to the space, right? And it all started back in the day. My wife had gotten into med school, and one of the things that I said to her is if we get if you get into med school, then we'll get engaged. And that's exactly what happened, right? But the caveat was she got into med school and it was in the islands, the island of Anguilla, to to be exact, and I was gonna be working, you know, and I was gonna be paying for it, it was gonna be paid cash. There was no loans or anything like that. So I was prepared to make that sacrifice if she was prepared to you know stretch herself. I've always had this thought of about being a a power couple, and that was always my vision, right? And I just remember I think it was a couple weeks before she was supposed to go. I remember she wrote me a letter, right? I was like, I remember picking up the letter, I was kind of like, this is odd. And then I read the letter and I go, hmm. Right. She pretty much said that she didn't want to go, right? She said that she didn't foresee us having the family uh that we hope for and uh a bunch of different things, you know, about family, because family's always been a big thing for me, and having children and stuff like that. And by the time she went to med school and then when she did the residency in Chicago, you know, at the time I was running several different businesses, and I, you know, wasn't gonna be able to just uproot and go to the islands or uproot and go to Chicago. I had I had, you know, firm businesses that required me to be there. So I remember when she wrote me, wrote me that letter, and I said, you know, we first said let's let's go talk to our pastor, right? So we went to go talk to our pastor, and he pretty much he pretty much sided with her, and she he was kind of like that's that's uh admirable that she would side with family and she would choose to you know she would choose family over a big vision like this. And obviously I was I was very upset. Uh and but it worked out for the best. It was the best thing that ever happened to me because family is at the forefront. If you know anything about me, I'm a foster dad, I'm adoptive dad. Um, I've adopted twins, uh, actively foster, you know, I've had a number of kids through my home. That's something that's a a ministry for us, and that's something that she's always known about me, that's important to me. So having that aspect intact was gonna always be important for us, right? So I I remember she after writing the letter, I said to her, What are you gonna do? Like, what are you gonna do now? And then she said, Let's look into real estate, and then that's when she handed me the book, Rich Dad, Poor Dad. And from there, I read that book and it really spoke to me. And then she said, There's a seminar attached to it. I went to the seminar and it spoke to me again, right? I was very hungry for that. I I'd never, you know, really did anything with real estate prior to that time, and then from there I went to another seminar, and after I went to that seminar, that's when I started taking messy action, right? That's this is what it's all about, right? When you're scared and you're not sure exactly what it's gonna take, and you have enough information, then you need to take messy action. So that's what I did. I started taking messy action. I remember getting my first wholesale deal uh under contract. I had a friend that worked at a title company named Mike. I didn't know exactly what I was doing, but I know he would do the paperwork for me and he would make sure that my contract was solid, right? So as I am actively marketing for deals and getting, you know, the contract, I'll call Mike and say, Hey, Mike, you know, what should I do here? What should I do here? And he would say, Hey, Sam, don't do this, or Sam, put this on the escrow line, or Sam, do that. I was very green when it when I started, uh, very green to this business, right? So, um, so that's kind of how I got my start. And then from there, I built I built from there, and I always wanted to be a house flipper, right? So that was one of the things that I absolutely wanted to do. I didn't want to be a wholesaler, and actually, wholesaling was almost harder than actually flipping. So, you know, I made some relationships with some capital partners, and then I was able to start start flipping, right? And then I created a machine that allowed an investor to come in from start to finish. I would handle every aspect of it. So the acquisition, the design, handle the construction, and and every aspect of it. And all I needed to do was have the investor come at the front side to close on the deal, and then on the back side to sell it. That's all I needed, right? So, but what that what that did was it equipped me with so many different skills, right? I I made sure that I created and added so much value to whoever that was investing with me, and and I would handle all of these aspects of it because flipping is not easy, right? Actually, most people fail when they flip because they don't have the infrastructure, they don't have the relationships, they don't have the sequencing, they don't have so many different parts that are required for you to be successful. So from there, what happened was I got the itch and I got really good at getting in and out of deals very quickly, and from there I decided to go into construction full-time, right? Then after about two years of business, I realized very quickly I didn't know what I was doing, I didn't come from a construction background, so I didn't have all the systems and processes and all of the different uh connection points or the knowledge. I really didn't have the knowledge, right? And then from there, I I remember telling my wife one day that I was never gonna be happy in this business, right? And then that's when I sought education. I found this group, and then I'm I made a relationship with this mentor, and then he dropped a big nugget on me, right? Um, first off, I went to Phoenix um to meet him, and then I met him out at this conference, and then he dropped a nugget on me that I never heard before. He said, Sam, I don't sell a custom home, I don't sell a spec home, I don't sell a duplex, triplex, or whatever. I sell a system that gets you to that custom home, that gets you to that uh spec home, that gets you to that project, right? And I just remember writing this down at the top of my of my notebook. I still have that notebook, and when I wrote that down on the top of the notebook, my wife had come with me because she tends to travel with me. I prefer that. And uh I I came home and I remember showing it to her. I said, I said, baby, maybe I've been looking at this wrong the whole time, right? And after that moment, I really started, you know, obviously I I speak to a lot of people. Uh I'm a big networker, I network with a lot of people, um, shook a lot of hands, met a lot of great people, and then I had so this bright idea. And the bright idea was uh, how about I fly out to Ann R Michigan and I check out your operation, right? So that was the first time I sat in someone's operation, and at the time, he's in what's called stage four of his business, right? He's looking to potentially exit his business, right? He's been around for close to 40 years in his business, and he's looking to exit his business. He's built a great, beautiful machine. Uh at the time, he was doing about 12 million dollars a year. He's doing significantly more than that now. And I remember just sitting in every meeting and with my notepad, and he just answered every question. Every meeting, every question I had, everything about SOPs, you know, about the team, about you know, uh building a team, building, you know, uh a network, having the right, you know, uh accounting system, having the right bookkeeper, you know, on track to make him make sure that he's profitable. All of these things that he was able to really, you know, feed into me. I was very lucky, right? That he was able to to to um you know to to mentor me like that. Mentorship has been the biggest part of of my growth, right? So, you know, after that, I went to another conference and I got another invite from another um uh mentor uh that's near and dear to my heart, John. And the same thing happened. I went this time I went for a week. I took my whole family, you know, visited him, saw his machine, same thing, 16 million dollars. He was cranking away. He's been in the business about 40 years. Uh, great group that you know I I made relationships with. And from there, I started to apply all of the concepts that I learned in this system, right? It was very important, but enough rambling, enough about that, right? So, today we're gonna be talking about how to get uh approved for construction loan, all right, even if you haven't done a development deal yet. So the first thing is what is a construction loan? Let's kind of break that down, all right. Uh, so a construction loan is a short-term loan used to build or renovate a property, all right. Funds are released on a draw, all right, or we call them milestones. So when you get to certain aspects of the build, then that triggers the release, it triggers a uh an inspection and then the release, and then it converts into either a sale at the end or a refinance and um into long-term debt, right? So we also call that uh loan to perm. Um, so meaning the loan turns permanent, right? So a lot of construction loans, what happens is because of the nature of construction and in the timelines of when you first qualify for the project and you're you're um financially uh financially uh qualified, and also the market is is qualifying the project, that's one stop, right? And then the second stop is when it's completed, right? So you gotta think about it like this. It could be 12 months, it could be 18 months, it could be 24 months, depending on the size of the project. And so they want to see if things haven't changed on your end and also on the market end to make sure that you qualify for this long-term debt that you initially qualified for on the front side, right? So that's what triggers the refinancing. So to loan to perm is you qualify one time and it automatically, once the house is completed and it becomes and you get your certificate of occupancy, it becomes a permanent loan. That's my preferred method of putting together a construction loan. So that's what a construction loan is. So now let's dive into what are lenders really looking for when they're analyzing your deal, right? And the first thing that they're looking at is the deal, right? Is it profitable? Uh, does it make sense uh in the marketplace? Does what you're looking to do make sense for for the area, right? Uh this is why it's good to have a strategic partner when it comes to your banking relationships that know and understand what you're trying to do, how you're trying to do it, and if there's a specific area that you choose to focus in, focus in on that area, right? So that's a strategic banking partner, right? Also, too, the the other thing that they're looking for is the borrower, right? What is your experience level? All right, do you have a team? All right, are you credit worthy? Credit is gonna be massive in getting this type of loan, right? Also, you know, financial strength. Do you have uh an additional uh arrow in your quiver? Do you have an accounting background? Do you are you accustomed to dealing with large numbers? Are you do you have savings? Do you have credit? Do you have um are you extended in any other property? They want to know who this principal is and truly understand who the profile is of the borrower, right? Also, too, number three, they also want to know the plan, all right. So, what does this plan look like? Do you have a clear scope? All right, do you have a clear timeline to deliver the project? All right, also, what's the budget, right? What is the budget? And this is where a lot of people mess up and they don't know their numbers, and this is where I'm a stickler, right? Knowing your sticks and bricks, which is your hard costs, and also knowing your your soft costs on how to put the project together in a complete fashion, right? And then also, too, it comes down to number four. Uh, what's your exit strategy? All right, are you gonna sell? Are you gonna refinance? How are you going to position this property to make sure that it's it's profitable? All right, banks don't fund ideas, all right? They fund well-structured plans, right? So they want to make sure that this is well thought out, well positioned, and it's also gonna be successful. And they also want to look at your your profit margin as well to make sure that this does make sense, right? All right, so let's look at another different area. Uh, what must you have before applying for the loan? This is very important, right? So, this is the the keys that you need in your package before you apply for the loan, right? First thing you have to, you have to control the property, right? Whether it's through a contract, uh, and also have a feasibility study already um prepared to be to be really considered, right? In an ideal world, you would have the property already closed on, then it makes it even easier for for us to lend, you know, or not us, the um the the bank to lend on this particular property because you already own it, right? But having control of the deal and the feasibility is gonna be the step, step one, right? Also, through step two is gonna be having a full set of plans. So having our architectural drawings, sometimes depending on the length of time, having the engineering plans, there are ways to expedite this process and make it a lot faster, right? Because if you if you figure if I have it under contract, am I gonna get the engineer to put produce the engine the the drawings and the um structural specifications in enough time for me to close on this loan? This is a necessary step and part of the process. So, but there's ways to expedite this process to make sure that you have everything that you need to have a complete package. Everything needs to be complete. Do not leave anything out of your package to make sure that you have the best chance to secure your construction loan, right? All right, also detail construction budget, right? I mentioned it already, sticks and bricks, which is your hard cost, right? So that's labor materials that you're gonna be using. Also to your soft costs, which is your permits, design, the fees, impact fees, architects, uh, engineering, and landscape architect, you know, landscape costs, you know, whatever it costs to get this thing built, those fees need to be included in your project to have a detailed construction budget. All right, they want to be able to see a clear picture. Uh, if you can't see the whole picture, uh, what do you think is gonna happen? Right? You you're gonna get denied, right? If I can't see the whole picture when someone brings a deal to me and the construction, you know, budget doesn't seem like it's uh realistic. This is what wholesalers typically do. They say, Okay, I think it's gonna be a $40, $40,000 renovation, but then you look at it, you're like, How is this gonna even make sense? Because it doesn't pencil, right? That's the language that's that's used often in making sure that it that the deal works. Then step number four, they're looking at a performer, right? So a deal analysis, total project costs, what is the ARV, what is the exit value, uh, what is your total profit margin, if the deal makes sense on paper or or not, is something that they're gonna be looking at. All right, also, too, uh number five, who's the builder and who's the who's the GC that's identified that's attached to this project, right? So here's the thing. So there's a lot of you know gurus out there, and they say, Oh, you just do it yourself. Well, the banks often want credentialed professionals that do this for a living, and some of the things that they're looking for for uh from them is they're looking for uh if this is a licensed contractor, they're looking for what are the recommendations. Have they done any of these type of projects before? Are they uh are they insured? And then some banks and some financial institutions are gonna be looking for um uh bonds, right? So a performance bond for this particular project to ensure that this guy is not gonna be a flyby night and we can hold him accountable with the bond that's required to be paid for, just in case if he does not fulfill his job, then we could attack the bond and get the project completed, right? So these are the types of things that banks are looking for as a fail safe to make sure that you can get through the project and also to make sure that you have the right team and you and you look the way that you're supposed to, right? I highly recommend, especially on your first deal, that you hire a builder, hire the right general contractor, right? So this is multifaceted, right? And I'm speaking from um wearing so many hats. I'm wearing my contractor hat now, right? And also to uh my mentor hat. The reason you want to hire a builder is if you don't have the experience on what the construction looks like, then what you will utilize the builder for is really sit down and see every step of the process and take detailed notes and ask a lot of uh questions about the process without having to make those mistakes up front. Now, can I teach you how to build? Absolutely. Uh every I I could build, you know, with my with my eyes closed, but at the same time, too, there's different building type and it's very regional, right? I can't tell you how to build every structure, right? But if you have a builder, especially if we're talking about high-end spec homes, you want to have a builder that have these built-in relationships, right? Because you're gonna want to make sure that your your your tile work is bang on flush, right? Because you want to have the best delivered um product possible, it's gonna be important that you have the right builder slash GC on your team. Then also too, they're looking at your equity and skin in the game, right? So, what is the skin in the game for you, right? So typically you're looking at anywhere from 10 to 25 percent of a commitment from you and in cash to secure the loan, right? So that's gonna be important. Um, also, too, do you have cash reserves or do you have a partner, a capital partner that's going to be filling these holes where you fall short? All all these things are gonna be important. Also, too, number seven, they're looking at financial statements to make sure that you're you're worthy, right? What type of assets do you have? What type of liabilities? What type of level of liquidity? All right, also, too, they they are often looking for a certificate of good standing from your current bank, all right. So that's gonna tell them a lot about who you are, who does this person that's looking to get the construction loan, right? Does does does they do they check off all of the boxes to secure this loan, right? Credit also number eight, credit and liquidity, uh, credit score matters, of course it does, cash reserves uh it in hand. These are all the things that help you get approved and make sure that you have a complete package. Why most people get denied, right? So there's several reasons why most people get denied. All right, it's not the bank's fault if you get denied. It's it's your fault, right? There's uh there's a book that I read, it's called Extreme Ownership, right, by Jocko Willock. Uh, and he was a Navy SEAL, and he talks about how they go into planning and preparation for each mission, and how they have A, B, and C, and then you know, if something happens, they do this, and then something happens to that, and how they run through all these different scenarios over and over and over and over and over, and they don't leave any room for excuses, right? So that's what extreme ownership is, right? You have to know the name of the game that you're playing, and you have to be prepared, right? So here's what most people uh why most people get denied, right? No real budget, right? No team in place, no experience, a weak deal, no equity, and no clarity, right? All of these are very are these are danger zones for any um any banking institution to get you approved, right? So I'd already said it. If the bank don't approve you, it's probably your fault, right? They don't approve bad ideas, they they approve solid ones. So that means that you didn't do your feasibility study, you didn't do your deal analysis correctly. They're looking at certain percentages, they're looking at certain um projections in the market to make sure that this deal pencils and this is a real deal, right? So, how to how to increase your approval odds, right? So there's several different ways that you could take advantage and how you could increase your approval odds is uh bring experience through your team, right? So my coach told me one day when I was in high school, very successful, he's a very successful insurance salesman, right? And he said this to me He said, Sam, you don't know you don't need to know everything, you just need to hire people that know what they're doing, right? And I just remember him saying that, and I repeated that, and till this day, it's so tried and true, right? I've started several different businesses, right? Haven't had the experience, I just had the idea. But one thing was was tried and true in every different venture that I've gone on. I hired experience, right? And I learned from them. I wasn't scared, right? I ask a lot of questions. You're here because you know, uh, you have more experience than me. But guess what? I catch up quickly. I catch up and I apply things fast, and you know, I gain the experience that I need, but I don't have to have the experience on the front side. I just need to hire someone that knows what they're doing. All right, so partner with experience, right? Partner with an experienced builder that knows what they're doing, partner with experienced developer to um maybe tag along and and bird dog for them and just kind of see how they put together a deal and how they put together their their finished product, right? Package the deal uh professionally, so clean, concise numbers that make sense, right, to everyone. Also, so have a clear story, have organized documents. Um, start smaller, right? Everybody wants to bat big, right? And it's and it's good to bat big, right? But that's gonna come with time. I mean, you take your time, learn, learn, learn to trade, right? And give you confidence anyway. When you get in front of rooms and you're looking to raise some capital and they're asking you questions about your product, you need to know, right? That's that's what's gonna be the separator, right? Become a professional in this business, right? Also, build relationships with lenders, right? So, this is the the area where I said have a strategic partner that knows the products that you're doing, that knows who you are, that knows you know what your capabilities are, that comes with time, but start looking at it that way in advance, right? So, let's talk about some of the frameworks that we use at the Pro Design Builder that helps you kind of uh streamline this process, right? Having the right deal flow system, big on deal flow, right? Having the dealer, um, the developer deal flow system that's consistently bringing in in leads, so you're analyzing deals, and also too the ones that don't work, maybe you might wholesale it off to another another uh you know developer or uh another builder that can can can build it himself and then also make the numbers work, right? Having the right underwriting system, we have to underwrite the property up front very early on. Uh team building system, big on team, having the right professionals on your team, and then the capital strategy. That's our focus at the Pro Design Builder. So, hopefully, got a lot out of that. I threw a lot at you. Very important to understand what it looks like to put together a deal, put together construction loan, and get it from concept to completion. If you got value out of this video, comment value. Uh, I would love to hear from you. If you have any questions whatsoever, hit me up. I'm gonna open book and and and we can see if we can work together. Outside of that, have a great day.