Financing New Duplex Construction

9 Replies

I have a client who owns a lot in booming East Austin that can be subdivided into 2 lots where he can build 2 duplexes (1 duplex on each lot).  He owns the lot outright.  My question is what is the best financing strategy (and why?) for him if he wishes to have as little out of pocket expenses as possible.   Client is also self employed with very little income over last 3 years.  

Lot Value: 300k

Total Estimated Construction Cost: 600k

Originally posted by @Ryan Walker :

I have a client who owns a lot in booming East Austin that can be subdivided into 2 lots where he can build 2 duplexes (1 duplex on each lot).  He owns the lot outright.  My question is what is the best financing strategy (and why?) for him if he wishes to have as little out of pocket expenses as possible.   Client is also self employed with very little income over last 3 years.  

Lot Value: 300k

Total Estimated Construction Cost: 600k

 There are local banks who like this kind of deal, but the borrower needs to have some credit and cash reserves. Your client may need a partner who can help get the loan.  It should be about 5.X % interest only for a year.  

Know that it can take a year to get the lot sub-divided and then a few more months to get the building permits.  What street is it on?

The lot is in Windsor Park near Manor Rd and 51st.Client has cash reserves and excellent credit and would prefer not to have to take on another partner.   An Architect I've worked with in the past and who has done permitting for me said he thought the whole project would take 12mo. with the subdividing/permitting taking 4-6mo.  Does that not sound possible?? As the timeline you're suggesting may change my clients thinking.

@Ryan Walker  Subdividing can take time. You should get this process completed before getting a construction loan. Construction loans are per property, so the split would have to happen before any bank will do the loan.

I am also finishing a subdivision now. Took a year. That seems like the right amount of time. Maybe less if your client drives the whole process himself and pushes subs hard

RBank in Georgetown is my favorite lender for this type of project.  Tell him to talk to Rodney Morales.  

You'll need 20% LTC plus the cost of pre-starts to get this project done without a partner.  So probably just over $200k.  

Bryan referred me to Rodney at RBank a couple of years ago and I've used him for several deals,  including a couple of duplexes like your client's. 

 I am in the process of subdividing another lot in 78702  now and  am coming up on a year on that one too  it does have set back issues that require a variance,   It also had an old easement that needed to be dealt with   Hardly any deals are completely  straightforward. 

Thanks for the replies and information.  We have had a survey done and do not anticipate anything that would require a variance, but it's good to know the length of time it could take to get that completed.  

Mortgages are available for buyers of duplexes, as well as of three- and four-unit dwellings. The options for financing multifamily homes depend on whether the buyer intends to occupy one of the units.