88128 Resource 78777 78860 1071 1111936068868 1215930418504 Controlled Commercial Construction Financing and the Contingency Reserve

Use 5% of Hard and Softs Costs

<p>When underwriting a commercial construction loan request, the wise commercial mortgage underwriter will analyze all <span style="TEXT-DECORATION: underline">four</span> of the major elements of the total construction cost.&nbsp; The major elements are the land cost, the hard costs, the soft costs, and the <span style="FONT-WEIGHT: bold">contingency reserve</span>.<br /><br />In any commercial construction process, there are always cost overruns.&nbsp; The contingency reserve builds in a cushion in the commercial construction budget to cover these cost overruns.<br /><br />What is the proper formula for computing a contingency reserve?&nbsp; There is nothing written in stone.&nbsp; I have seen underwriters use 10% of hard costs, but the formula I find the most logical is 5% of hard and softs costs.<br /><br />Why not include the land cost in the above formula?&nbsp; The land cost is usually known in advance and is fixed.&nbsp; It is unlikely that there will be a cost overrun connected to the purchase of the land itself.&nbsp; <br /><br />Now of course the cost of grading, excavating, or cutting the roads may be higher than the commercial property developer has budgeted for, but each of these costs are part of hard costs.<br /><br />You can apply to hundreds of commercial construction lenders using C-Loans.com.<br /><br />&nbsp; </p> 9 application/xml false commercial construction lender commercial construction loan commercial financing commercial loan commercial mortgage commercial real estate loan Apply to Hundreds of Commercial Construction Lenders with One Easy App http://www.c-loans.com/onlineapp Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; .NET CLR 1.1.4322; .NET CLR 2.0.50727) 127.0.0.1 127.0.0.1 johngaudio 216.87.92.57 false true false false true 198508 false false true false false false true 78777 blog blogsite/CLoans/web