How do I get a construction loan and pay myself to do the work?

Question

Hi All

I am a contractor and real estate investor (single fam and multi-fam). I am trying to pull the 2 businesses together for greater focus.

My goal is to find a way to build an addition onto my house to act as an in-law suite / airbnb rental but I will need to pay myself over the several months that it will take to build the suite.

Second note is that my house is up for refinance in about a year and a half so it would be great to wrap both loans into the refi with a little cash-out if possible. (I have about $200k equity in the house but at 75% LTC is wont be enough to finance the addition.)

Does anyone have a great hack on getting a constrution loan that you can pay yourself from as the GC? Any good contacts for loans is appreciated also.

Thanks in advance

Brad Hammond · Answer

Hey @Stephen Kleyn, if you are going to get a 203K loan, you are not able to do the work yourself for the property. You will need to hunt around for a lender that will do a 203k loan. Not all lenders will because they are more complicated and take longer to close.

Stephen Kleyn · Answer

Hi Brad,

Thanks for the info. Are you saying that construction loans that are performed by the home owner take longer to process / more difficult?

Also, any suggestions on lenders?

Bruce Woodruff · Answer

I never had any luck with this as a GC...either as an S Corp or an LLC. Be careful, they take a hard look at this......

Stephen Kleyn · Answer

Thanks Bruce. I think my last option is to try shop different lenders, hopefully find someone with relaxed guidelines.

JD Martin · Answer

Do you have employees or are you a single operator? Is your company incorporated? I would suspect those things would make this easier.

In order for something like this to pass muster, I would think you would need to have an arms-length company in place that could provide Consumer you with a written quote for the job based on fair market prices and reasonable profit for Contractor you, and then maybe at least one or two other quotes from competitors. Then, of course, reporting all of the money Consumer you paid Contractor you on your taxes as you would any other job.

Stephen Kleyn · Answer

Thanks for the quick reply, and great points!

I am a sole propriator LLC so I'm guessing that I'd need to switch to an S-corp or something like that to hopefully qualify for arms length.? Any ideas

How do I get a construction loan and pay myself to do the work?

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