Is it possible to build a duplex with zero out of pocket? Would this method work?

8 Replies

Ive got a friend of mine that is a bank loan officer and he believes that he could get me a loan to build a rental duplex. Lets say I can build an economical duplex for 70k and it would be appraised at 100k. So, the bank would loan up to 80% of the appraised value which would cover the entire cost to build the duplex correct? Would something like this work or not to avoid having to put 20% cash down?

seems like you can ask your loan officer friend that question. 

@Dan Ward  

If you can build duplexes for 70k, I'd recommend you go into the construction business :)

Not too sure how it would work with zero money down but sounds like what I want to do..build new as there is no affordable duplexes for sale in my area building sounds cheaper than buying here.

No. Won't work. For tons of reasons that your friend can tell you about. Only a private lender or some other investment pool where they are assuming such high risk. Or your Mom. :)

Technically, yes it can. As a commercial lender, I know this. But, the is a severely technical yes. The practical side of things says no way. You can get a lender to agree to loan you 80% of the cost to build. You almost certainly can not complete the build properly for 80% of the finished value. And I promise you can't do a traditional, concrete slab, approx 1200sq ft/side duplex for $70,000. No way.

You can get a construction loan from various banks in our area that will lend you up to 80% of the cost to build a house, or in your case a duplex. I know from talking with two of my friends that are home builders, you can't build a house for 80% of its value. If you can do it for 85%, you are very successful at managing costs and most likely cut some corners.

In order to qualify for a loan like that, you have to meet a fairly stringent criteria around certain metrics like credit score, liquid assets, proven reserves to finish the job and cover issues that might come up, potentially additional guarantors besides just yourself etc.

And then you have to see which of them will allow you to transition the loan to permanent financing. Do they have a loan product that will auto convert? Do they make you go to their mortgage side to refi? Do you have to do another commercial term loan, pay for appraisal, phase 1 assessment etc?

I have no idea what building materials you use up there or how cheap your labor is, but around here, the best I can do is build a fairly basic rental for about $65/ft. Unless you plan on having a duplex where both sides are an efficiency, you won't get close to $70,000.

There is a reason people advertise existing construction for less than replacement cost. It almost always costs significantly more to build new than buy existing.

Is it possible?  Yes.  Through a bank, not likely.  I'm having a hard time figuring out what the problem is, however, if your friend can and is willing to get you every dollar to build the duplex?

Thanks for the input! I have found the most difficult part of getting into property ownership is getting your first one. I currently own a home, make a good living, but I just cant see digging into my nest egg to put 20% cash down on a property. It must be because I'm sure a cheapskate. And oddly enough I have done some work with a local architect and although I wont actually build a duplex for 70k, it wont be terribly far from it. Its more of a loft style concept, one bed, one bath, industrial style with a monolithic slab and a similar design to what you see in the picture.

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