Building Construction Financing Mistakes

Here Are Some Of The More Common Building Construction Financing Mistakes To Avoid

While in the area of building construction financing mistakes, there are lots of different things to consider, let’s focus in on some of the more costly mistakes that get made and should be avoided at all costs.

Remember that the key to completing a building construction project for the lowest possible cost and highest possible future return and a sound approach to project management and cash flow management which is the focus point on this mistakes discussion.

Not Sticking To Your Project Plan

Even the best construction project planning can go off the rails when the execution does not follow the plan.

Construction draw schedules can be very particular and exacting when reviewed by the lender. If you’ve build anything out of order or have not completed certain elements when draw advances are being requested, you stand a chance of either having the draw advance delayed or reduced which can cause all sorts of problems to the project.

When sub trades and suppliers can’t be paid on time, the project can quickly become on the verge of falling apart and may be difficult to get back on track without experiencing delays and added costs.

Not Planning For the Unexpected

Serious construction management will allow for a contingency plan and potentially a separate source of funding to draw on if additional funds are required at some stage of the project.

Things like changes in scope, unplanned cost overruns, draw reductions, and so on, can outstrip your available source of construction financing, leaving the project scrambling to find incremental funds before belays set in and potential litigation from those not getting paid.

By having a ready source of capital to address these types of issues, both planned and unplanned changes in the project can be dealt with swiftly.

Exit Strategy Not In Place In Time

Even if the construction project is completed in a timely fashion, in budget, at the end of the project, the completed work needs to be commissioned and sold off or refinanced to repay the construction mortgage. If there is a significant delay in repayment, at the very least there is going to be additional costs at likely a higher rate of interest. At the worst, the mortgage lender will start foreclosure proceedings in order to gain control of the property so that it can be sold with the proceeds repaying the amounts advanced.

Avoiding these key mistakes will go a long ways to having a highly successful building construction project.

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