Guidance from people with experience
Member since 2021 · 4 posts · 4 votes
Hi everyone, I’m a registered nurse and have been wanting to get into real estate for a while, but I’m not really sure where to start. Here’s my situation: I own a home with about $68,000 left on the mortgage, and the houses around me are selling for roughly $280,000. I also own the two lots right next to my house—the only free lots in my subdivision—both just under 1.5 acres each. I don’t have cash saved up to start anything, but I do have the land. I’m not sure if I could go to a bank and use the land as a down payment for a construction loan, or if there’s a better way to go about it. Also, I’m not sure if it would make more sense to build and sell right away, or build and rent the house out.I’d love any advice or guidance from people who have experience with this. Thanks!
You’re actually in a really good position. You can definitely use the land as your down payment for a construction loan. From a lending perspective, the land is considered your equity, so even without a bunch of cash you’re not starting from zero. You’d just need plans/blueprints, a builder with a scope of work, and typically above a 660 credit score.
I wouldn’t try to do too much at once though. Figure out your goal before building. If you want quicker cash, build and sell. If you’re thinking long term, build and rent it out, then refinance. For your first deal, partnering is also a great option. You can team up with a builder or investor where you’re both on title, you bring the land, they bring capital as well as experience, and you split the deal. It takes a lot of pressure off your first project, and then you can use that experience to get good terms on the next one by yourself.
As long as the lots are owned free and clear and have solid value, you’re in a strong position to get started without needing a bunch of cash upfront. I’ve even seen deals where the land value covered the down payment and closing costs, and the borrower only had to come out of pocket for things like the appraisal.
Great news, you actually answered your own question and you're right. Land can absolutely be used as equity in lieu of a cash down payment on a construction loan. That's a specific program called a land-as-collateral or construction-to-perm loan, and what you're describing is a textbook example of how it works.
With two free and clear lots in a subdivision where homes are selling at $280K, you have real equity to work with without needing cash savings. The land value becomes your contribution to the deal instead of a cash down payment.
On the build vs rent question — for someone with stable nursing income who wants long-term wealth building, build and rent is often the stronger play. Once the home is built and rented you refinance into a DSCR loan which qualifies on the rental income, not your personal income. That keeps your nursing salary free from complicated debt-to-income calculations as you scale.
I specialize in exactly this — land-as-collateral construction loans and construction-to-perm financing. Happy to walk you through what this looks like on your specific lots.
Do you know if the lots are already platted and have utilities available or are they raw land?
Felicia, you are in a good spot so do not rush into anything at all. You have about 210k in equity in your home and some raw land that can have two structures built each worth the same 280k.
Your big X factor is not the money. You have money in your house and you have money in the land. It is the builder, the building prices, the ARVs. Do you need vertical and horizontal?
Also, you need to remember while 85% LTC is out there, it will work like draws on flips and it can only be drawn upon once work is completed so the more you can front of the build upfront, the faster and the less draws you will need.
If it were me, I'd be concerned with the builder and do they understand the trades, process, permitting, licensing, money management, etc. That's your make or break. You still will need that initial infusion to the builder so they can get the job moving. If the houses are worth 280k, then what is the raw land the structure sits on worth? Figuring a 120k - 150k build cost and an ARV of 280k that makes the land around 30k - 50k per lot if you wanna keep project cost at or around 70% of ARV. The lender will only give you 50% of land value in cash out.