Many builders set themselves up for life financially by building spec homes which they sell during or after the build process. This is in contrast with those builders who take on clients and build the house for their clients on the section that their client has purchased.
The spec home builder must make their own purchase of the section, and they must decide on their own house design and then start building the house. This can be very risky financially if for some reason they can’t find a buyer, but in most cases the Builder is a smart operator and knows the market well and knows what to build and where. Once the house construction has started then there will be any number of eager potential buyers driving past and staring, and putting an offering. A smart builder will have engaged a good real estate agent, who will make absolutely certain that they get the very best price for the Builder.
The financing of this project for the builder can be a bit complicated, because all the money they borrow for the project will be paid back as soon as the house is purchased. A good mortgage broker will find finance that is fit for purpose, and can be drawn down in stages so that the builder can first purchase the section, then purchase plans or architectural design, then purchase planning and consenting and then start the build process. Often banks are not interested in this type of lending, but a good mortgage broker will have a number of non Bank lenders and high networth individuals on their books, and will be happy to do the deal. These projects are attractive for these financiers because interest rates are higher than in Main Street Banks, while the risks are not that great, particularly when the a builder is trusted and experienced in the community.
The Builder may end up selling the house during the very early building stage and sometimes even before the section is cleared and prepared for the build. When the builder has a good real estate agent who knows how to tap into the market and how present the opportunity, the Builder can find that the buyer will come in and take on all the financial risk for the project. Visit this website for Auckland mortgage brokers. The buyer will need to arrange a bank mortgage, but the drawdowns for the mortgage can be used to cover all the costs which the builder accrued. This can mean that the loans that the mortgage broker has arranged can get paid back early, and the mortgage broker will need to repay some of their commission back to the lender.