From the course: Construction Finance Fundamentals

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Financing real estate construction

Financing real estate construction

From the course: Construction Finance Fundamentals

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Financing real estate construction

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- [Instructor] An important part of the real estate development process is how the developer will pay for the project, and how does the payment method change to the different phases of the development process. Before we align the four stages of the development process with the funding, let's quickly revisit a capital stack. As a refresher, we can relate the capital stack to how you may fund your house. If your house is worth $100,000, then the bank may give you secured debt for 60% of that value, or $60,000. It's secured debt because the bank essentially lends you the money on the basis that it has your house as security if you are unable to make your mortgage payments. We also call this senior debt because it's senior to or above any other form of payment for your house. The bank will be paid before anyone else. Equity is your down payment. That's the cash you put in. So in our simple case for the $100,000 home, it's $40,000. The bank will not give you the $60,000 until it knows you…

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