1 00:00:12,080 --> 00:00:15,280 Hello, the duo is back for episode #17. 2 00:00:15,280 --> 00:00:18,160 It's hard to believe we're already on the 17th episode. 3 00:00:19,360 --> 00:00:23,440 Honestly. We come at a time in between the 4 00:00:23,440 --> 00:00:27,000 the holidays where sometimes things are slowing down a little 5 00:00:27,000 --> 00:00:29,320 bit, but certainly not for us. We've been fairly busy. 6 00:00:29,320 --> 00:00:31,960 But before we jump into it, you want to take a second to talk 7 00:00:31,960 --> 00:00:33,240 about your Thanksgiving. How was it? 8 00:00:33,920 --> 00:00:38,320 Yeah, yeah, it was good. We hosted at our house actually, 9 00:00:38,320 --> 00:00:42,040 which was fun. So we got to have several people 10 00:00:42,040 --> 00:00:43,440 over here and a lot of good food. 11 00:00:43,440 --> 00:00:45,880 And yeah, it was it was a really good time. 12 00:00:46,360 --> 00:00:49,080 What about you? I know you were not even on this 13 00:00:49,080 --> 00:00:53,920 side of the pond, so to speak. Yeah, I had a had a little jump 14 00:00:53,920 --> 00:00:58,240 over to Europe for for some things but did get back in time 15 00:00:58,240 --> 00:01:02,760 for Thanksgiving. So real low key and I listeners, 16 00:01:02,760 --> 00:01:06,320 you can call me a little bit crazy, but actually ran a 1/2 17 00:01:06,320 --> 00:01:09,400 marathon all by myself during during Thanksgiving Day. 18 00:01:09,400 --> 00:01:12,120 So got to come back and feast up after that. 19 00:01:12,120 --> 00:01:15,200 So yes, I am crazy. There you go, getting ready for 20 00:01:15,200 --> 00:01:17,200 your half Iron Man. Awesome. 21 00:01:17,320 --> 00:01:20,000 Yeah, something like that. Well, let's jump into this. 22 00:01:20,240 --> 00:01:24,000 Today, we wanted to talk about financing a custom home. 23 00:01:24,400 --> 00:01:27,680 So what, what does financing look like? 24 00:01:27,680 --> 00:01:29,240 What does, what does that even mean, right. 25 00:01:29,240 --> 00:01:32,640 I think we all know what financing means as in general, 26 00:01:32,640 --> 00:01:37,720 but but how does it relate to designing and building a custom 27 00:01:37,720 --> 00:01:39,720 home? When do I need to get the money? 28 00:01:39,720 --> 00:01:43,000 If I'm going to, if I'm going to finance the home with a 29 00:01:43,000 --> 00:01:46,000 construction loan from a bank or a third party. 30 00:01:47,120 --> 00:01:50,800 So that's really what we wanted to, to briefly discuss here 31 00:01:50,800 --> 00:01:52,280 today. Steven, you want to you want to 32 00:01:52,280 --> 00:01:54,840 kick it off for us? Yeah, Yeah, sure. 33 00:01:55,280 --> 00:01:58,000 And like you said, yeah, I mean we're specifically keeping this 34 00:01:58,000 --> 00:02:03,440 to new home construction financing and it also will 35 00:02:03,800 --> 00:02:05,880 really just encompass custom homes. 36 00:02:05,880 --> 00:02:09,000 You know, I know production builders or some of the big box 37 00:02:09,000 --> 00:02:12,440 builders actually offer their own financing or we'll build the 38 00:02:12,440 --> 00:02:16,040 home, you know, on their dime and their dollars. 39 00:02:16,040 --> 00:02:19,920 And then if you bust out, you know, the home is very similar 40 00:02:19,920 --> 00:02:21,360 to all the other ones that they build. 41 00:02:21,360 --> 00:02:24,520 So it's fairly easy for them to turn around and just sell it in 42 00:02:24,520 --> 00:02:26,840 a neighborhood 30 in and they're already building right around 43 00:02:26,840 --> 00:02:29,880 the corner and possibly even built the same floor plan. 44 00:02:29,880 --> 00:02:34,440 So excluding that market, right. This is what we're talking about 45 00:02:34,440 --> 00:02:37,800 is specifically new home construction for custom homes. 46 00:02:37,800 --> 00:02:42,080 But with that clarification, yeah, you know really there's 47 00:02:42,840 --> 00:02:45,600 two different types of financing that we have seen most 48 00:02:45,600 --> 00:02:50,960 prominently when we're working with clients and that is cash or 49 00:02:50,960 --> 00:02:53,880 a construction loan. So I think cash is somewhat 50 00:02:53,880 --> 00:02:55,920 straightforward. You know, people still do have 51 00:02:55,920 --> 00:02:59,440 plenty of questions and how does that look, you know, when do we 52 00:02:59,440 --> 00:03:03,640 pay different draws and how do we pay the builder versus the 53 00:03:03,640 --> 00:03:05,960 subcontractors? How does that all split up? 54 00:03:05,960 --> 00:03:08,600 So that's something we'll talk through, but mostly the 55 00:03:08,600 --> 00:03:11,480 construction loans are where you know it takes a lot of 56 00:03:11,480 --> 00:03:13,920 coordination and it's it's multiple parties that are 57 00:03:13,920 --> 00:03:16,320 involved and there's different things that have to happen. 58 00:03:16,440 --> 00:03:19,360 Throughout the process to. To make the bank feel 59 00:03:19,360 --> 00:03:22,720 comfortable giving people these large sums of money. 60 00:03:22,800 --> 00:03:26,200 So, yeah, yeah. You have anything to add that? 61 00:03:27,160 --> 00:03:30,920 Yeah let's let's take probably just about 10 seconds here to 62 00:03:30,920 --> 00:03:33,240 talk about cash. If you are coming to a custom 63 00:03:33,240 --> 00:03:40,280 home builder with cash to to finance your your build it's 64 00:03:40,720 --> 00:03:44,640 it's going to be broken into payments for progress of 65 00:03:44,640 --> 00:03:48,760 completion, right. So there's going to be a we have 66 00:03:48,800 --> 00:03:53,160 we've done so much we get the builder gets whatever you've 67 00:03:53,160 --> 00:03:58,000 agreed upon at at the in the contract right is is typically 68 00:03:58,000 --> 00:04:01,720 how how that's most most often times going to happen with with 69 00:04:01,720 --> 00:04:04,760 the cash financing with a construction loan it'll be a 70 00:04:04,760 --> 00:04:08,400 little bit different. So when the money is is needed 71 00:04:08,400 --> 00:04:12,840 to pay the bills there will be a draw request so, so we'll we'll 72 00:04:12,840 --> 00:04:15,520 jump into that here in a second but just wanted to address the 73 00:04:15,600 --> 00:04:19,279 the rest of this episode we're going to be talking more about 74 00:04:19,760 --> 00:04:22,360 working with bank financing not too much cash. 75 00:04:23,120 --> 00:04:24,800 Yep. And I'm I want to clarify on one 76 00:04:24,800 --> 00:04:27,760 thing you said there too that when cash is involved, the 77 00:04:27,760 --> 00:04:31,960 clients cash, if you're working with a professional builder it's 78 00:04:31,960 --> 00:04:36,040 not uncommon and actually it's very common that the builder 79 00:04:36,040 --> 00:04:40,520 will request draws and that draw will encompass all of the work 80 00:04:40,520 --> 00:04:44,880 that has happened you know and that needs to be paid for, has 81 00:04:44,880 --> 00:04:48,720 been invoiced and also the builders share of the amount of 82 00:04:48,720 --> 00:04:50,360 work that's been complete just like you said. 83 00:04:50,360 --> 00:04:54,640 So typically that construction amount that drawl as we're 84 00:04:54,640 --> 00:04:58,000 calling them goes directly to the builder and the builder is 85 00:04:58,000 --> 00:05:01,880 professional and divvies that up as it needs to be divvied up. 86 00:05:01,880 --> 00:05:06,160 It's not on the client to pay anybody individually. 87 00:05:06,160 --> 00:05:08,000 The client is making payments solely. 88 00:05:08,000 --> 00:05:09,840 To the. Builder and the builder is 89 00:05:09,840 --> 00:05:13,560 acting as the ultimate general contractor, takes all the money 90 00:05:13,560 --> 00:05:16,640 in and splits it up accordingly so that everybody gets paid the 91 00:05:16,640 --> 00:05:20,120 way that they have been contractually agreed upon to be 92 00:05:20,120 --> 00:05:22,480 paid. So that's the way that it should 93 00:05:22,480 --> 00:05:25,920 happen in cash or construction loans work the same way. 94 00:05:25,960 --> 00:05:28,600 It's just who's. Fronting the money, is it a bank 95 00:05:28,600 --> 00:05:32,520 or is it the the client? So, yeah, little differentiator 96 00:05:32,520 --> 00:05:34,560 there. Yep, yeah, great point. 97 00:05:34,680 --> 00:05:37,440 So really what how does a construction loan work? 98 00:05:37,920 --> 00:05:40,880 Well, you're going to go, you're going to go to a bank and 99 00:05:40,880 --> 00:05:48,400 request a construction loan, ideally before any construction 100 00:05:48,400 --> 00:05:51,280 has started or even before. Even while you're in the design 101 00:05:51,280 --> 00:05:56,160 phase, you can never talk to the bank too early because there's 102 00:05:56,160 --> 00:05:59,120 obviously limitations on how much money they're willing to to 103 00:05:59,120 --> 00:06:02,240 lend to anybody, right. It's going to be based off of 104 00:06:02,240 --> 00:06:05,520 your financial picture, your assets and also your, your 105 00:06:05,520 --> 00:06:09,160 income. So you'll go to the bank as 106 00:06:09,160 --> 00:06:12,200 early as possible to at least get similar to like going to get 107 00:06:12,200 --> 00:06:14,960 a mortgage on an existing home to see what you're, what you're 108 00:06:14,960 --> 00:06:18,480 qualified for. You're qualified for say $1.5 109 00:06:18,480 --> 00:06:22,120 million, right? That will also help the builder 110 00:06:22,120 --> 00:06:24,840 understand, OK, what do you, what do you, what's your, what 111 00:06:24,840 --> 00:06:28,000 you qualify for and what you are comfortable with. 112 00:06:28,000 --> 00:06:30,560 Maybe two different numbers and that's perfectly fine, but it's 113 00:06:30,560 --> 00:06:33,960 going to help us make sure that we're not doing anything out of 114 00:06:33,960 --> 00:06:39,320 order and that we do have a way to actually finance the home 115 00:06:39,320 --> 00:06:41,960 that that you want to build so that we're not wasting anybody's 116 00:06:41,960 --> 00:06:43,720 time. So you go to the bank get the 117 00:06:43,720 --> 00:06:49,560 pre approval for whatever whatever amount that is we sign 118 00:06:49,560 --> 00:06:53,000 a contract the the builder and the and the homeowner would sign 119 00:06:53,000 --> 00:06:55,800 the contract together for whatever is agreed upon in terms 120 00:06:55,800 --> 00:07:06,080 of the the the floor plan the the specifics the the the 121 00:07:06,080 --> 00:07:09,960 payment schedule and then obviously the the total the cost 122 00:07:09,960 --> 00:07:11,440 right. Whether it's cost plus or fixed 123 00:07:11,440 --> 00:07:13,480 price it it doesn't really matter. 124 00:07:13,480 --> 00:07:17,640 Some banks will actually dictate I only I I will only allow 125 00:07:18,200 --> 00:07:21,280 funding on fixed price contracts but that it's going to there's a 126 00:07:21,280 --> 00:07:23,800 lot of things that vary from from bank to bank or credit 127 00:07:23,800 --> 00:07:30,920 union to credit union. So we get the contract on the on 128 00:07:30,960 --> 00:07:35,480 the with the builder and the homeowner and then from there a 129 00:07:35,480 --> 00:07:38,480 lot of the paperwork, the typical paperwork of validating, 130 00:07:38,480 --> 00:07:42,920 proving your assets, proving the the your income is there, just 131 00:07:42,920 --> 00:07:46,840 having all that documentation and eventually you'll close on 132 00:07:46,840 --> 00:07:51,080 the construction loan and typically the the cost to do so 133 00:07:51,080 --> 00:07:54,760 is, is the closing costs. And then if the bank requires 134 00:07:54,760 --> 00:08:00,040 any upfront equity or you know what we often often term skin in 135 00:08:00,040 --> 00:08:03,440 the game saying hey there's more money that that needs to be put 136 00:08:03,440 --> 00:08:06,720 into this either in terms of a deposit to the builder or into 137 00:08:06,720 --> 00:08:08,440 some equity account with the bank. 138 00:08:08,440 --> 00:08:14,160 Again variable on on the bank that you're working with and and 139 00:08:14,160 --> 00:08:16,600 then that's it right. So then you we have this what we 140 00:08:16,600 --> 00:08:19,520 call like an escrow we have a construction escrow account it's 141 00:08:19,520 --> 00:08:24,840 it's your money it's it's your funds the the liability is on on 142 00:08:24,840 --> 00:08:29,160 you as the homeowner and then we're we're ready to start 143 00:08:29,160 --> 00:08:32,360 building right. So really we'll we'll finish the 144 00:08:32,360 --> 00:08:35,159 rest of this, but but that's that's all the work that has to 145 00:08:35,159 --> 00:08:39,720 be done concurrently while we're working on a plan set, while 146 00:08:39,720 --> 00:08:42,840 we're working on finalizing that that dream home and what you're 147 00:08:43,320 --> 00:08:46,840 what you're after. While we're even up to the point 148 00:08:46,840 --> 00:08:50,920 of doing permitting and and other approvals with the 149 00:08:50,920 --> 00:08:52,320 neighborhood and things like that. 150 00:08:52,320 --> 00:08:54,400 So there's a lot of concurrent things going on and this is 151 00:08:54,400 --> 00:08:56,480 certainly one critical one to make sure that we can move 152 00:08:56,480 --> 00:09:00,720 forward and and pay the pay the cost to build this thing. 153 00:09:01,680 --> 00:09:04,800 Yep, Yep. And I think you touched on it in 154 00:09:04,800 --> 00:09:08,040 there that there actually are a lot of checks and balances in 155 00:09:08,040 --> 00:09:10,000 this system. You know the bank isn't going to 156 00:09:10,000 --> 00:09:12,880 give you more money than you qualify for. 157 00:09:12,960 --> 00:09:14,760 They're also not going to give you more money than the 158 00:09:14,760 --> 00:09:16,600 completed project is going to be worth. 159 00:09:16,840 --> 00:09:20,360 So they do an appraisal just like they would on an existing 160 00:09:20,360 --> 00:09:23,360 home. They'll look at the floor plan. 161 00:09:23,360 --> 00:09:25,960 They'll look at your selections or your finish outs that you're 162 00:09:25,960 --> 00:09:28,120 going to have in this home that's to be built. 163 00:09:28,560 --> 00:09:30,760 They're going to look at even the builder's track record a lot 164 00:09:30,760 --> 00:09:33,760 of times because the bank doesn't want to get in to a 165 00:09:33,880 --> 00:09:37,240 partnership with a a builder that they have very little 166 00:09:37,240 --> 00:09:40,200 confidence is going to finish the job to the way that they say 167 00:09:40,200 --> 00:09:43,320 it's supposed to be finished. So the bank is doing a lot of 168 00:09:43,320 --> 00:09:47,400 things to help protect not only your assets but also the bank's 169 00:09:47,400 --> 00:09:50,200 assets as well, which is the majority of where these 170 00:09:50,200 --> 00:09:52,160 construction loans come from often times. 171 00:09:52,160 --> 00:09:55,800 So like we were saying, you know, there's a lot of checks 172 00:09:55,800 --> 00:09:59,080 and balances there and it it's good for the clients, it's also 173 00:09:59,080 --> 00:10:01,600 good for the banks and it's good for the builders to you know, 174 00:10:01,600 --> 00:10:04,200 builders know that they're building within a scope that 175 00:10:04,520 --> 00:10:07,400 everybody's comfortable with. The bank is comfortable with it, 176 00:10:07,400 --> 00:10:10,440 the homeowners are comfortable with it and the builder in turn 177 00:10:10,440 --> 00:10:12,200 should be comfortable with that as well. 178 00:10:12,200 --> 00:10:17,040 So all checks out there, but you were finishing up your point by 179 00:10:17,040 --> 00:10:20,960 saying that we are now at the point where we have a an escrow 180 00:10:20,960 --> 00:10:24,960 account, so to speak, of money that we can use throughout the 181 00:10:24,960 --> 00:10:26,480 build. So where do we go from there? 182 00:10:28,680 --> 00:10:32,120 So you've closed on the loan, We've started construction and 183 00:10:32,120 --> 00:10:35,280 we've started to incur cost to build the home. 184 00:10:37,680 --> 00:10:43,480 At that point, we will request what is called. 185 00:10:43,480 --> 00:10:46,000 We've referred to a draw from the bank. 186 00:10:46,000 --> 00:10:49,280 So the way that works, a drawl of money, right, the escrow 187 00:10:49,280 --> 00:10:51,480 account, all the funds, even after you've closed all the 188 00:10:51,480 --> 00:10:53,760 funds are still sitting in the bank, right. 189 00:10:53,760 --> 00:10:55,720 The money has not been given to the builder. 190 00:10:56,400 --> 00:10:58,640 So again, as Steven said, there's a lot of checks and 191 00:10:58,640 --> 00:11:00,480 balances. We request a drawl that 192 00:11:00,480 --> 00:11:04,480 typically involves us documenting what were how much 193 00:11:04,480 --> 00:11:09,320 money we are requesting, where it's going to go and for what 194 00:11:09,320 --> 00:11:12,800 expenses, whether it's a fixed price contract or a cost plus. 195 00:11:13,120 --> 00:11:16,640 Again it doesn't really matter. It still is agreed upon upfront 196 00:11:16,640 --> 00:11:21,280 that hey this is, this is you know this is where this money is 197 00:11:21,280 --> 00:11:25,000 going. The you as the client will 198 00:11:25,320 --> 00:11:31,200 approve that you will sign off on it saying hey this is I agree 199 00:11:31,200 --> 00:11:34,320 to this because you're seeing the progress of of the project. 200 00:11:34,320 --> 00:11:37,000 So you know that there's obviously been expenses incurred 201 00:11:38,000 --> 00:11:42,640 and then at that point we submit the documentation and in off in 202 00:11:42,640 --> 00:11:47,360 most cases the bank will hire a an inspector to come out and 203 00:11:47,360 --> 00:11:49,800 really just take pictures. They're there to just take 204 00:11:49,800 --> 00:11:52,800 pictures for documentation purposes on the progress of the 205 00:11:52,800 --> 00:11:55,040 home. They are not checking for 206 00:11:55,040 --> 00:11:57,640 quality, they're not checking for anything else other than 207 00:11:57,640 --> 00:12:00,440 they're to take pictures, show proof that this is the house 208 00:12:00,440 --> 00:12:04,440 being built on this particular lot with the builder that we've 209 00:12:04,440 --> 00:12:07,000 agreed to do business with. Again, checks and balances. 210 00:12:07,800 --> 00:12:11,120 From there it goes back, they approve everything and then the 211 00:12:11,560 --> 00:12:16,520 money is wired directly from the bank to our bank account so you 212 00:12:16,520 --> 00:12:20,040 do not see the money. However, you will typically get 213 00:12:20,040 --> 00:12:22,880 a a monthly statement very similar to like a a personal 214 00:12:22,880 --> 00:12:26,280 checking account saying hey, here's here's how much money has 215 00:12:26,280 --> 00:12:29,920 been drawn on the on the escrow account for this construction 216 00:12:29,920 --> 00:12:32,440 loan. And then typically with that 217 00:12:32,440 --> 00:12:35,600 statement comes the interest that you owe on that. 218 00:12:35,600 --> 00:12:39,160 Whatever interest rate you have agreed to in that contract will 219 00:12:39,160 --> 00:12:41,200 be OK. You're only paying interest on 220 00:12:41,200 --> 00:12:44,680 the money that has been drawn, not on the money that is still 221 00:12:44,680 --> 00:12:46,840 sitting in the escrow account with the bank. 222 00:12:49,200 --> 00:12:50,960 Yup. Yeah, that's a a really good 223 00:12:50,960 --> 00:12:54,120 point there that you just talked about is that a lot of times 224 00:12:54,120 --> 00:12:57,320 these construction loans are interest only throughout the 225 00:12:57,320 --> 00:13:03,080 build and so that plays well with building quickly number 226 00:13:03,080 --> 00:13:07,720 one, but it also does not play well with higher interest rates 227 00:13:07,800 --> 00:13:11,320 of course. So you know it's it's definitely 228 00:13:11,320 --> 00:13:13,640 something that it's a progressive thing. 229 00:13:13,640 --> 00:13:17,720 So it only accrues interest on the amount that you've taken out 230 00:13:17,920 --> 00:13:20,280 from the bank. So if it's first draw and you 231 00:13:20,280 --> 00:13:24,880 took $100,000 out of your $500,000 escrow account or 232 00:13:24,920 --> 00:13:28,240 amount that you can fully draw from, you're only getting 233 00:13:28,240 --> 00:13:31,360 charged interest on that 100,000 until you pull your next draw. 234 00:13:31,360 --> 00:13:34,040 Then it increases that of course and then you're paying more 235 00:13:34,040 --> 00:13:37,400 interest per month. So you know it's, it's a 236 00:13:37,400 --> 00:13:40,080 progressive thing and it actually helps throughout the 237 00:13:40,080 --> 00:13:42,760 build that you're not paying the full amount of interest on the 238 00:13:42,760 --> 00:13:45,280 full loan amount from the very beginning. 239 00:13:46,200 --> 00:13:48,680 That's typically what we see. Of course, every bank might be 240 00:13:48,680 --> 00:13:51,360 different. Credit unions are usually some 241 00:13:51,360 --> 00:13:54,800 of the most lenient and flexible, sometimes have the 242 00:13:54,800 --> 00:13:56,920 best terms. So check with your local credit 243 00:13:56,920 --> 00:13:59,200 unions. But we've seen good success 244 00:13:59,200 --> 00:14:05,440 working with those and yeah, so. Just a little little insight 245 00:14:05,440 --> 00:14:11,640 into the from a builder's perspective, we are constantly 246 00:14:11,640 --> 00:14:15,440 incurring costs on that build weekly as long as the product, 247 00:14:15,440 --> 00:14:17,560 the project is progressing, right. 248 00:14:18,000 --> 00:14:22,760 So another another of many reasons to make sure you've done 249 00:14:22,760 --> 00:14:26,200 your due diligence on selecting a professional builder is making 250 00:14:26,200 --> 00:14:28,680 sure that their accounting and their bookkeeping is, is in 251 00:14:28,680 --> 00:14:33,200 tight order because they need to code those costs to the 252 00:14:33,200 --> 00:14:35,960 appropriate house appropriate project. 253 00:14:36,480 --> 00:14:41,080 And as you can see how this works, the builders going to 254 00:14:41,080 --> 00:14:45,000 have received so much money at any given point in time, right. 255 00:14:45,080 --> 00:14:48,320 But the costs are going to be either over or under. 256 00:14:48,320 --> 00:14:51,560 Very rarely are the costs going to be at that exact point in 257 00:14:51,560 --> 00:14:56,760 time the exact same to the money that has been drawn. 258 00:14:56,760 --> 00:15:01,360 So you're always either over or under what what you need, right. 259 00:15:01,360 --> 00:15:04,600 So the the point in me sharing this, what you need from, from a 260 00:15:04,600 --> 00:15:08,880 builder's perspective, mind you. So the point in me sharing this 261 00:15:08,880 --> 00:15:14,280 is that you want to hire a professional builder because you 262 00:15:14,280 --> 00:15:19,720 need to make sure that they have a well run operation financially 263 00:15:19,720 --> 00:15:26,320 that when they have. For example, the the builder has 264 00:15:26,320 --> 00:15:31,040 taken 200,000 in drawls, but the expenses are now 250 two, 265 00:15:31,040 --> 00:15:35,960 175,000 because there was just a big payment to for example to 266 00:15:35,960 --> 00:15:38,880 the the drywall company or the OR the framer. 267 00:15:40,440 --> 00:15:43,840 There's there's many times where the builder just needs to be 268 00:15:43,840 --> 00:15:46,680 able to have the proper cash flow to carry that until they 269 00:15:46,680 --> 00:15:50,880 get the next bank draw, right. It's not it's it's just too much 270 00:15:50,880 --> 00:15:54,200 paperwork for everybody including yourself if the 271 00:15:54,520 --> 00:15:58,360 builder is requesting A drawl every other day, right. 272 00:15:58,360 --> 00:16:02,160 So typically what we see to minimize the amount of paperwork 273 00:16:02,160 --> 00:16:07,360 for all parties involved is anywhere between 5:00 to 11:50 274 00:16:07,360 --> 00:16:11,240 draws for the entire project. So I just want to share that 275 00:16:11,240 --> 00:16:13,320 little insight from the builders perspective to help you 276 00:16:13,320 --> 00:16:16,160 understand how it's managed. So it might be that we've we 277 00:16:16,160 --> 00:16:20,360 have $200,000 of money for the project, but our expenses are 278 00:16:20,360 --> 00:16:25,280 actually 275 and in that next draw it's meant to to catch us 279 00:16:25,280 --> 00:16:27,400 up, right. And then it could be the flip 280 00:16:27,400 --> 00:16:30,880 side in that, oh, we have actually drawn more money than 281 00:16:30,880 --> 00:16:34,200 the expenses, but we're about to very soon incur other expenses 282 00:16:34,200 --> 00:16:38,280 that are going to catch us up. So it's a constant overage and 283 00:16:38,280 --> 00:16:41,560 underage until you get to the very end to be rest assured. 284 00:16:41,560 --> 00:16:44,600 Again, with a professional builder at the very end, 285 00:16:44,600 --> 00:16:47,800 everything is trued up to what you agreed to in that contract. 286 00:16:48,880 --> 00:16:53,480 Yeah, that is a fantastic and very important point that maybe 287 00:16:53,480 --> 00:16:57,360 I can try to recap here so that people hear it another way. 288 00:16:58,760 --> 00:17:01,920 Working with a professional builder is the key there that 289 00:17:02,520 --> 00:17:06,400 the worst thing you can do is find a fly by night small 290 00:17:06,400 --> 00:17:09,200 builder that quoted your project aggressively. 291 00:17:09,280 --> 00:17:13,760 I'll put it that way or you know under bid your project and then 292 00:17:13,839 --> 00:17:16,760 they don't have their own financial backing to be able to 293 00:17:16,760 --> 00:17:22,480 carry those times where the construction draws are less than 294 00:17:22,560 --> 00:17:24,400 the amount that has been invoiced for the job. 295 00:17:24,560 --> 00:17:27,480 Then you've got delays in construction If trades say hey 296 00:17:27,480 --> 00:17:30,640 I'm not coming back until I've been paid builders not caught up 297 00:17:30,640 --> 00:17:33,840 on payments or you know whatever the case is. 298 00:17:33,840 --> 00:17:37,400 But man, it's that would be a really tough position to be in 299 00:17:37,400 --> 00:17:41,680 if you're working with a small, unprofessional, whatever, even 300 00:17:41,680 --> 00:17:45,800 just a a builder that is not organized. 301 00:17:45,920 --> 00:17:48,080 I mean, that could be enough right there that they're, 302 00:17:48,240 --> 00:17:51,360 they've got job costs coming in from different jobs and they 303 00:17:51,360 --> 00:17:53,600 can't keep them straight because their accounting is not good 304 00:17:53,600 --> 00:17:56,000 enough. Or they're not using efficient 305 00:17:56,000 --> 00:17:58,280 QuickBooks or whatever their accounting methods are. 306 00:17:58,280 --> 00:17:59,880 They're getting everything mixed up. 307 00:17:59,880 --> 00:18:02,440 And then next thing they know they've taken too much of A draw 308 00:18:02,440 --> 00:18:04,320 on one house and not enough on another. 309 00:18:05,000 --> 00:18:08,880 It's financial. Accounting for custom home 310 00:18:08,880 --> 00:18:14,440 builders is a huge beast. I mean, it is a it's a very 311 00:18:14,440 --> 00:18:18,160 tough topic and even accountants have a tough time with it if 312 00:18:18,160 --> 00:18:20,880 they're not familiar with custom home builders. 313 00:18:20,880 --> 00:18:26,960 So I say that not to scare people and not to, you know, not 314 00:18:27,120 --> 00:18:29,640 want to work with a custom builder, but it just is even 315 00:18:29,640 --> 00:18:33,600 more of a supporting argument to go with a builder that you trust 316 00:18:33,640 --> 00:18:37,640 and a builder that has a good track record and a reputation of 317 00:18:37,640 --> 00:18:39,640 being a professional custom home builder. 318 00:18:40,800 --> 00:18:41,480 Yep. All right. 319 00:18:42,640 --> 00:18:50,280 I want to make it very clear that just because a builder is 320 00:18:50,680 --> 00:18:54,680 is large doesn't mean they're in a good financial place, right? 321 00:18:55,400 --> 00:18:57,440 They could be, but they may not, right. 322 00:18:57,440 --> 00:19:01,280 And that's really part of again doing your due diligence because 323 00:19:01,520 --> 00:19:05,600 at the end of the day you can be a multi $1,000,000 home builder. 324 00:19:05,920 --> 00:19:10,000 But if you don't have good cash flow, we've seen it happen 325 00:19:10,000 --> 00:19:12,880 Steven and it's it's a horrific experience for the homeowners 326 00:19:12,880 --> 00:19:16,720 where they're and and we'll digress after this because I 327 00:19:16,720 --> 00:19:23,160 think that it it it can get way more complex but they can be 328 00:19:23,160 --> 00:19:26,560 funding they can be using construction draws from 1 329 00:19:26,560 --> 00:19:28,760 project to pay bills for another. 330 00:19:28,760 --> 00:19:33,280 So again, it comes down to organization and the builder has 331 00:19:33,280 --> 00:19:36,680 to be very aware of their finances to make sure that 332 00:19:36,680 --> 00:19:40,480 everything is in order, that they're using that that money 333 00:19:40,480 --> 00:19:45,600 for the right project. And that again, cash flow is key 334 00:19:45,680 --> 00:19:48,200 because there's a lot of bills coming in and out. 335 00:19:48,200 --> 00:19:50,880 As you know, we don't have to state the fact that home 336 00:19:50,880 --> 00:19:54,080 building is capital intensive and it's always going to be that 337 00:19:54,080 --> 00:19:55,840 way, right. That's just the nature of the 338 00:19:55,840 --> 00:19:57,240 industry, nature of the business. 339 00:19:57,240 --> 00:20:02,280 So it's it's the home builders that have mastered that and you 340 00:20:02,280 --> 00:20:06,000 have their trust that you can. Affect a smooth pleasant 341 00:20:06,000 --> 00:20:08,280 experience, but that that's really key. 342 00:20:08,280 --> 00:20:11,080 And again, I want to reiterate the fact that that's not to 343 00:20:11,080 --> 00:20:14,360 scare you, but this is just we want to share this because we 344 00:20:14,360 --> 00:20:17,240 want to educate everybody that that is listening to us. 345 00:20:18,240 --> 00:20:21,480 Yeah, yeah, yeah. And good differentiator there. 346 00:20:21,480 --> 00:20:23,320 That size actually doesn't matter. 347 00:20:23,480 --> 00:20:25,560 It's a really good point. And actually some of the bigger 348 00:20:25,560 --> 00:20:28,760 builders get into bigger trouble because they're doing the wrong 349 00:20:28,760 --> 00:20:31,480 thing and have done it that way for however long it took them to 350 00:20:31,480 --> 00:20:33,400 get big. And their problems are 351 00:20:33,400 --> 00:20:35,520 multiplied. It's just a bigger problem. 352 00:20:35,600 --> 00:20:37,840 It's the same problem they had from the time they were small, 353 00:20:38,240 --> 00:20:39,600 but now it's just a bigger issue. 354 00:20:39,600 --> 00:20:43,080 So can even be messier as you get bigger. 355 00:20:43,080 --> 00:20:46,680 But yeah, that's a really good differentiator that yeah, you 356 00:20:46,680 --> 00:20:52,040 just you need to find a builder that is doing well cash flow 357 00:20:52,040 --> 00:20:55,080 wise and is a reputable and honest builder. 358 00:20:55,720 --> 00:20:58,600 Yep. So I just I I would, I'd like to 359 00:20:58,600 --> 00:21:01,800 sum this up or wrap it up. As you know, there's a lot of, 360 00:21:01,800 --> 00:21:05,160 there's a lot of things that the bank needs just in terms of 361 00:21:05,160 --> 00:21:09,120 documentation. There are checks and balances of 362 00:21:09,120 --> 00:21:11,600 course to protect every party as there should be. 363 00:21:11,640 --> 00:21:15,440 And every bank that we have worked with, they've been fair, 364 00:21:15,440 --> 00:21:19,600 they've been equitable. And you know it's it's really 365 00:21:19,600 --> 00:21:22,080 about just communicating when things come up. 366 00:21:22,080 --> 00:21:24,200 We've had minor issues come up and you work through them, 367 00:21:24,200 --> 00:21:26,560 right. And and I think that's just what 368 00:21:26,560 --> 00:21:29,040 that's the mindset you have to have going into it. 369 00:21:29,040 --> 00:21:33,240 Now the the last thing I want to state is really two things. 370 00:21:33,280 --> 00:21:36,440 Again, you cannot start talking to the bank early enough. 371 00:21:37,560 --> 00:21:40,720 The amount of time it takes from beginning discussions and 372 00:21:40,720 --> 00:21:43,320 interviewing banks on which ones you like more than others based 373 00:21:43,320 --> 00:21:46,040 off of how they're going to service you, what their interest 374 00:21:46,040 --> 00:21:49,120 rates are and all those other things that are important that 375 00:21:49,120 --> 00:21:53,760 may be important to you. I would say it it's going to be 376 00:21:53,960 --> 00:22:00,960 anywhere from as short as four to five months up to six to nine 377 00:22:00,960 --> 00:22:04,280 months and I know that's a wide range, but working with the 378 00:22:04,280 --> 00:22:07,360 banks to get a construction loan does not happen quickly. 379 00:22:07,360 --> 00:22:11,080 So that's six to 9th month, 6 to 9 month. 380 00:22:12,560 --> 00:22:17,600 Time frame that I gave you is, is from start to to actually 381 00:22:17,600 --> 00:22:20,960 closing on the loan saying hey we can begin construction and 382 00:22:20,960 --> 00:22:23,560 start pulling draws. And by the way the bank will not 383 00:22:24,080 --> 00:22:29,120 allow us to start construction until the the that a loan has 384 00:22:29,120 --> 00:22:32,720 been funded typically. So there is a timing element 385 00:22:32,720 --> 00:22:35,000 there as well. We can't just start construction 386 00:22:35,360 --> 00:22:39,360 and be a certain certain way through the project and then go 387 00:22:39,360 --> 00:22:42,440 to the bank and say OK now we want money right or now we want 388 00:22:42,440 --> 00:22:44,600 to close on the loan and they they will not allow that. 389 00:22:44,680 --> 00:22:47,360 So really Steven, that's that's how I'd sum this up. 390 00:22:47,360 --> 00:22:51,520 I think is hopefully insightful for our listeners here on on 391 00:22:51,520 --> 00:22:54,880 just a little bit more about financing, I at one point in the 392 00:22:54,880 --> 00:22:58,160 past I'm inactive, but at one point in the past was a licensed 393 00:22:58,160 --> 00:22:59,800 loan officer in the state of Texas. 394 00:23:00,360 --> 00:23:04,800 I never actually funded or did any construction loans. 395 00:23:04,800 --> 00:23:08,400 It was your traditional traditional and conventional 396 00:23:08,400 --> 00:23:16,920 mortgages, but funding and financing home homes and and 397 00:23:18,160 --> 00:23:21,560 real estate is is all similar at at some level, right? 398 00:23:21,560 --> 00:23:26,000 So really good stuff, Steven. Yeah. 399 00:23:26,240 --> 00:23:28,200 Yeah, absolutely. Good points there. 400 00:23:28,200 --> 00:23:32,280 And yeah, you know, I I think that you did a great job of 401 00:23:32,280 --> 00:23:35,240 summing it up and provided a lot of value for all of our 402 00:23:35,240 --> 00:23:39,920 listeners being like you said, a licensed mortgage or loan 403 00:23:39,920 --> 00:23:42,000 originator in Texas. Former. 404 00:23:42,000 --> 00:23:43,520 Let's get that clear. Not anymore. 405 00:23:44,600 --> 00:23:48,360 Yeah, don't hold us accountable. But yeah, you know, even more 406 00:23:48,360 --> 00:23:49,800 than that. I just want to tell the 407 00:23:49,800 --> 00:23:54,400 listeners too that you're you're always on top of our 408 00:23:54,400 --> 00:23:57,760 construction loans and you run all of our finances on our end, 409 00:23:57,760 --> 00:24:00,200 of course working with an accountant and everybody else 410 00:24:00,200 --> 00:24:03,440 that we need to. But you know without you our 411 00:24:03,440 --> 00:24:08,520 business would not be as as successful as it is I guess is 412 00:24:08,520 --> 00:24:11,000 the best way to put it. So want to thank you for that. 413 00:24:11,000 --> 00:24:14,680 But also just let the listeners know that it's not hollow advice 414 00:24:14,680 --> 00:24:17,040 that's coming out of your mouth or mine. 415 00:24:17,520 --> 00:24:20,920 We've seen plenty of construction loans in our time 416 00:24:20,920 --> 00:24:22,960 of building homes. We've seen successful ones. 417 00:24:22,960 --> 00:24:26,680 Luckily we have not seen any unsuccessful ones and there's 418 00:24:26,680 --> 00:24:30,200 reasons for that, right? We have cash, buffers and all 419 00:24:30,200 --> 00:24:32,520 kinds of stuff in place in our business and we work with 420 00:24:32,520 --> 00:24:35,880 reputable banks and and we're a reputable builder. 421 00:24:35,880 --> 00:24:39,440 So it's a good combination. When we start a contract and 422 00:24:39,440 --> 00:24:42,280 start building a home, we drive it from start to finish. 423 00:24:42,280 --> 00:24:46,320 And our goal is to make it as smooth and painless of a process 424 00:24:46,320 --> 00:24:51,760 for the clients as possible. We don't want to have any, you 425 00:24:51,760 --> 00:24:55,560 know, contention or anything like that with the banks or the 426 00:24:55,560 --> 00:24:57,880 financial partners. That's the last thing that we 427 00:24:57,880 --> 00:25:00,840 want and that it can just throw a wrench in any build. 428 00:25:00,840 --> 00:25:04,680 So yeah, we're always on top of that and always looking out for 429 00:25:04,680 --> 00:25:07,000 it. But hopefully this episode has 430 00:25:07,000 --> 00:25:11,280 shed some light for anybody that's, you know, questioning 431 00:25:11,360 --> 00:25:14,640 construction financing. Like we said, it is a beast and 432 00:25:14,640 --> 00:25:18,080 it is a huge topic and there's a lot more to it. 433 00:25:18,200 --> 00:25:21,000 But hopefully this was a good kind of high level overview, 434 00:25:21,000 --> 00:25:23,320 just enough so that the listeners feel comfortable 435 00:25:24,480 --> 00:25:27,440 picking the right builder and then knowing kind of what to 436 00:25:27,440 --> 00:25:31,080 keep their guard up on and and just be more informed on making 437 00:25:31,080 --> 00:25:34,800 decisions in that realm. Yep. 438 00:25:34,840 --> 00:25:38,120 And and I want to make sure we just address this last thing and 439 00:25:38,120 --> 00:25:41,320 we'll wrap it up. I we don't want to overwhelm 440 00:25:41,320 --> 00:25:43,240 you. Once you understand the process, 441 00:25:43,240 --> 00:25:49,920 everything is is typically more streamlined in your and you can 442 00:25:49,920 --> 00:25:52,840 feel comforted that OK, I understand what's going on and 443 00:25:52,840 --> 00:25:54,480 I'm comfortable to proceed. Right. 444 00:25:54,480 --> 00:25:58,240 So really the purpose of this episode is just, yeah, at a high 445 00:25:58,240 --> 00:25:59,960 level to share with you how it works. 446 00:26:00,480 --> 00:26:03,840 It is a beast, but that's not meant to overwhelm anybody. 447 00:26:03,840 --> 00:26:06,680 Once you understand things it's it's it can be really smooth 448 00:26:06,680 --> 00:26:09,280 sailing and a great experience. So Steven, thank you for your 449 00:26:09,280 --> 00:26:11,320 time. Yeah, absolutely. 450 00:26:11,320 --> 00:26:12,040 Same on your end.