This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
The third class of building loan, and one previously referred to, is what is known as a building permanent loan, or a loan made as a permanent loan for three or five years, but advanced in building payments from the time the building is started. These loans differ from the previous loans principally because they are permanent investments, and are made only by people who seek investment. They are the most advantageous loans a builder can obtain as they insure a certain fixed amount of money to use in speculative operation and relieve him of the necessity on the completion of his building, of obtaining a new mortgage. Almost all of these loans are made by a few of the life insurance companies, and now and then by the title companies. It will be recalled that in speaking of the other two kinds of building loans, that the figures have been based on the value of the land at the time that the building is started, and upon the cost of the building. In figuring this third class of mortgage, which is a permanent investment, it must be figured on what the land can fairly be estimated to be worth when the building is completed, and what the building is worth - not what it costs; in other words, on the total reasonable market value of the completed property. This makes it possible to obtain a larger loan than the ordinary building loan, and constitutes the difference, in amount, between building and permanent loans. The rate of interest on such loans is generally 6 per cent during course of construction, and reduced to a lower rate after completion.
Most of the very large apartment houses, apartment hotels, and business buildings, involving large sums of money and built by speculative builders, have been financed in this manner.