Best Loan for Building an Income Property

Member since 2026 · 1 post · 0 votes

We own a piece of land, free and clear that is worth about $50,000. It's in a niche area that has huge growth potential over the next couple of years. We would like to build a small home and then use it as either a STR or LTR. We already own one LTR (worth $420k, owe $55k), and I manage several STRs. We have excellent credit, and about $25k in liquid savings, would like to use the equity in the land as at least part of the down payment. What would the best loan product for this situation be? The lenders I have spoken to so far say that conventional loan is not possible since it's not primary or secondary, and we would need to do ARM Commercial loan, and the AR makes me nervous.

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Pierre Guirguis

Lender · Marlboro, NJ · Member since 2025 · 243 posts · 150 votes

7mo

Since the property will be an investment from day one, most lenders won’t allow conventional financing, which is why you’re being pointed toward commercial or portfolio products.

A common structure for situations like this is a construction loan for the build, then refinancing into a long-term rental or DSCR loan once the property is completed and rented. Since you already own the land free and clear, many lenders will allow the land value to count toward your equity in the project, which can reduce the cash you need to bring in.

The ARM piece you mentioned is common with smaller commercial construction loans, but many investors simply use it as a short-term build loan and then refinance into fixed-rate debt once the property is stabilized.

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Benjamin AakerPro Member
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
7mo
You may be able to get a land line of credit on your 50k. You should talk to some other bankers. I'm not sure why this one is only offering an adjustable rate. That being said, it seems unlikely that interest rates will go up much in the near term with war in Iran and economic metrics looking flat or negative right now. I understand that there is risk but with ARM you can get a better deal sometimes, so maybe don't rule it out completely.
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Pierre Guirguis
Lender · Marlboro, NJ · Member since 2025 · 243 posts · 150 votes
7mo
Since the property will be an investment from day one, most lenders won’t allow conventional financing, which is why you’re being pointed toward commercial or portfolio products.

A common structure for situations like this is a construction loan for the build, then refinancing into a long-term rental or DSCR loan once the property is completed and rented. Since you already own the land free and clear, many lenders will allow the land value to count toward your equity in the project, which can reduce the cash you need to bring in.

The ARM piece you mentioned is common with smaller commercial construction loans, but many investors simply use it as a short-term build loan and then refinance into fixed-rate debt once the property is stabilized.
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Jonathan Chan
Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes
7mo
Quote from @Nicole Krenzin:

We own a piece of land, free and clear that is worth about $50,000. It's in a niche area that has huge growth potential over the next couple of years. We would like to build a small home and then use it as either a STR or LTR. We already own one LTR (worth $420k, owe $55k), and I manage several STRs. We have excellent credit, and about $25k in liquid savings, would like to use the equity in the land as at least part of the down payment. What would the best loan product for this situation be? The lenders I have spoken to so far say that conventional loan is not possible since it's not primary or secondary, and we would need to do ARM Commercial loan, and the AR makes me nervous.

I can help you run some numbers to see what options you have.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
7mo
Quote from @Nicole Krenzin:

We own a piece of land, free and clear that is worth about $50,000. It's in a niche area that has huge growth potential over the next couple of years. We would like to build a small home and then use it as either a STR or LTR. We already own one LTR (worth $420k, owe $55k), and I manage several STRs. We have excellent credit, and about $25k in liquid savings, would like to use the equity in the land as at least part of the down payment. What would the best loan product for this situation be? The lenders I have spoken to so far say that conventional loan is not possible since it's not primary or secondary, and we would need to do ARM Commercial loan, and the AR makes me nervous.

Hey Nicole,
What would be the total build cost? It sounds like getting a HELOC from your LTR worth $420k may make more sense to finance this. There will be less scrutiny and due diligence compared to a ground up construction loan. Alternatively you can also look into a full cash out, if the goal is have 1 solid mortgage payment for both properties. It may be cheaper doing it this way than doing a ground up loan and then refinancing again.
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Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
7mo
@Nicole Krenzin DSCR loan.
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