Financing as Develpoer + Builder

3 Replies

Hello Everyone, 

My husband and I own a contracting co. We are in the process of planning our first spec home build. We have purchased the lot already and have the septic and site plan approved.  

My question is about financing and how to receive  the "profits" from the project. 

My lender wants us to include all labor costs into the estimates for this job so that the appraiser will have more information about the scope of work to be done. I wasn't planning on charging labor to "ourselves via the loan at 4%" throughout the project. I was planning on just making draws for the material and other sub contractors (plumbing, elect, etc) and then taking the profits upon the sale of the house once complete. 

Is this a good idea? Will is save me taxes in the long run? 

Based on my analysis if I charged labor I would be paying 4% interest + income taxes+ self employment taxes. If I waited to sell the property, I would only have capital gains (which would be taxed as regular income) but not self employment taxes-- right??

We are an LLC taxes as an S Corp.

Thank you so much.  I have gain so much knowledge by reading all your discussions.

Good question. I am trying to research the same thing. I know you didn't get any feedback but have you come to any conclusions since?


We ended up obtaining a HELOC on our primary residence with a local CU. We basically had it paid off so we took out enough to build this house + some. Also, in the future will save ourselves financing costs on other projects as we can continue to use this for the next 10 years. We were trying to keep our financing separate from personal/business, but it just made sense.

@Jen Etten With the caveat that I'm not a lawyer or CPA you should be able to still keep your financing separate between personal and business. Basically, your personal HELOC funds the LLC and the payment is recorded as a member contribution. As long as you run the LLC as a business then I don't know why or how you would be exposing your personal assets.

On the other hand, if you used your personal HELOC to take title in your personal name then clearly that is exposing your personal assets; or the same if you as the contractor were doing this without being inside an LLC (i.e. We are the GC, LLC).

With a HELOC you simplify the financing. Just make sure to keep the business structure in mind from an operations point of view. Your property, your contracting company - both of those should be in LLCs if you are operating this as a business versus as a personal activity.

We have a CPA that helps us answer these types of questions and does our company and personal taxes at the end of the year. CPAs charge less than lawyers, I'd recommend checking in with either for a quick conversation on this deal (even after the fact is better than not at all) and to set yourself up for success on the next one.

Making sure you are insured - for the property and total rehab expenses, and GC insurance - is also a good way to insulate exposing personal assets.

Congrats on the project!

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