Financing Multi Unit Construction Projects can basically be done through funds provide by the following three sources of financing listed from lowest cost of interest charged to the highest. That being said, there are times when the lowest charged interest rate lender does not end up providing the lowest overall effective rate of financing once all costs are added in. We will leave that discussion for another day.
So in terms of sources for financing multi unit construction in Ontario or other parts of Canada, there are three basic groups of lenders to consider.
The first group is the major banks and branded institutional lenders. There are certain main line lenders that have a focus in financing multi unit construction. Some will do straight construction financing and others will require the right to finance the construction take out mortgage at the end of the project before agreeing to provide the core construction financing.
The lower cost sources of money will have much more rigid requirements for qualifying for funding as well as for draw administration. In order to access and take advantage of this category of multi unit construction financing, you should have some experience with these lender requirements or be working with someone, like a construction mortgage broker, that does.
The second group is what we will refer to as sub prime institutional lenders or quasi institutional lenders where the rates are slightly higher than the banks, but the lender still has the capacity to fund large scale projects, and the related loan administration and draw management process is considerably more straight forward and easier to manage compared to the lowest cost, lowest risk lenders.
The third group is private mortgage lenders which contribute a considerable amount of capital towards multi unit construction projects. But unless the private lending source is a well funded and diversified mortgage investment corporation, the funding limits with be in the two to three million dollar range for the most part.
Private funds for financing multi unit construction are going to be more expensive than the other two sources, but they can also typically be put into place faster and the draw administration process associated with them is very streamlined, making them more predictable and manageable in most situations.
The key with financing multi unit construction projects is getting the right lender fit for your requirements, timeliness, and budget.
The best way to determine which category of lender, and specific lenders in that category are a potential good fit for your multi unit construction project is to work directly with a construction mortgage broker.
If you are looking for multi unit construction financing for a project your planning or are in the middle of, I suggest that you give me a call so we can go over your requirements and discuss different financing options that meet your needs.