If you own land and want to develop multifamily housing on it, you could get an 85%+ LTC construction loan that might even allow for cash out. How? Land equity and an often unknown HUD detail: BSPRA 🧵
What is BSPRA? BSPRA stands for Builders/Sponsors Profit Risk Allowance. It is an option under the Section 221(d)(4) program which requires:(1) an established identity of interest between
the borrower and general contractor and (2) the GC’s profit to be satisfied outside of loan.
the borrower and general contractor and (2) the GC’s profit to be satisfied outside of loan.
In exchange for this structure, the recognized costs in a development (not including land) are artificially increased by 10%. The 85% loan to cost calculation is then made on
the higher cost figure, resulting in a higher insured loan amount (roughly 93% of recognized cost)
the higher cost figure, resulting in a higher insured loan amount (roughly 93% of recognized cost)
So, if you stick with your budget, you could be looking at 93% LTC construction loan that rolls into permanent financing upon final closing.
While the 221(d)(4) program outlines a maximum loan to cost of 85%, it also allows for BSPRA, which can result in ~93% LTC loan or even a cash out loan when there is land equity.
This can be achieved provided minimum debt service coverage and statutory mortgage limits (which recently just rose) support the underwriting.
Imagine getting cash OUT to build an asset that could create generational wealth. #retwit #CRE #multifamily #finance #HUD
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