Build to Rent Financing

[Jeff Graybeal]

Hey Everyone, I am a GC/Real Estate Investor that has several years of experience doing complete rehabs, but would like to grow into the build to rent space. I have some questions about financing options in this area of investing.

Some context: Our company has the capital to buy the land, put 20-30% down, and even finance the build of one property at a time out of our own accounts, but we would like to scale faster than one property at a time. We are aware that we may need to build a property to prove the experience to do so.

Vision: We’d like to purchase the lot, finance the build of a home/multi-family property, and then do a cash out refi/dscr loan at the end.

Questions:

Do we need to plan to purchase our own land and then start the construction loan process?

Is there a process where you can do the construction & refi in one swing without multiple closings?

Do you have to wait a 6 month seasoning period to be able to access your equity

We've done DSCR loans for our rental homes before, but I am unsure how the construction loan process works. During construction do you pay interest only payments or do you pay towards the expected construction cost?

Thanks!!

[Devin Peterson]

Quote from @Jeff Graybeal:

Hey Everyone, I am a GC/Real Estate Investor that has several years of experience doing complete rehabs, but would like to grow into the build to rent space. I have some questions about financing options in this area of investing.

Some context: Our company has the capital to buy the land, put 20-30% down, and even finance the build of one property at a time out of our own accounts, but we would like to scale faster than one property at a time. We are aware that we may need to build a property to prove the experience to do so.

Vision: We’d like to purchase the lot, finance the build of a home/multi-family property, and then do a cash out refi/dscr loan at the end.

Questions:

Do we need to plan to purchase our own land and then start the construction loan process?

Is there a process where you can do the construction & refi in one swing without multiple closings?

Do you have to wait a 6 month seasoning period to be able to access your equity

We've done DSCR loans for our rental homes before, but I am unsure how the construction loan process works. During construction do you pay interest only payments or do you pay towards the expected construction cost?

Thanks!!

 HI jeff,

Great questions! Sounds like youre ready to take the leap into that next level! To answer your questions simply: NO, you do not need to buy the land outright, there are loans and lender options out there that will allow you finance the horizontal and soft cost items. However - a lot of lenders will ask that you do buy the land, go through all the horizontal soft cost items first and make it "shovel ready" in order for them to committ. You have options in both cases, more in the latter. 

Construction to perm - yes, this exists.. just depends who you go with. However, I have seen a lot of cases where builders will close and construction to perm deal and when the transition period comes the market shifts, and there are better to terms on the table that from other lenders and your current debtor might not be willing to adjust. Just a thought. I get "saving on cost" in theory - but I have seen that scenario play out in reality more often than not where the refi ulitmately made more sense (paying the refi cost than taking a higher converted rate).

Confused on the quity access question? Elaborate?

During reno project loans you are only paying interest on the GUC/LTC plus the drawn amount. You have whats called dutch and non-dutch. You are seeking non-dutch. Which is also and option, depending on lender terms and leverage available, both could be in the mix

Happy to connect and chat more if you have questions - good luck!