New construction loan?

Question

My plan is to build a fourplex(townhomes).  I have received quotes for just the shell/frame and a complete move-in ready build.  The difference is close to 150k. I am comparing the complete build to the cost of the shell, plus my supplies cost.

I figure it is worth my time, even paying the mortgage out of pocket while I complete the several months of work myself.  Electrical, plumbing, insulation, drywall, flooring, kitchens, and baths will be completed by myself.

Is it possible to acquire a loan like this without being a contractor?  ..or is this just a horrible idea?

Mike Wood · Answer

@Mike C. You did not mention if this was for your primary residence or just a investment property. While it would be up to your local banks that do construction loans, I highly doubt that you will find many banks that will allow you to do that. I some banks around me allow you to act as GC for a primary residence, but have never heard of them allowing it for multifamily or investment properties.

You would have to see if your local city will allow you to GC the build yourself, as described, given its multifamily.

I also doubt that one person can finish four units in "several months". That's a ton of work.

You would have to see if your local city will allow you to GC the build yourself, as described, given its multifamily.

I also doubt that one person can finish four units in "several months".  That's a ton of work.

Marc Kelly · Answer

I would recommend getting someone involved that knows that part of the process. Even if just to come in and supervise and you get your license. This is a large investment, the bank shouldn't be your only concern...not that you don't trust yourself, but you only know what you know. Experience helps. If you get an experienced partner, I can help you with a funder.

Mike C. · Answer

I spoke with a contractor today and it seems it is extremely easy to become a contractor in the state of PA.  No test or anything required.  Just have to pay for your license and get insurance through a normal insurance company.

Why do you suggest against starting with a fourplex?

Mike Wood · Answer

@Mike C. Given your lack of experience and your desire to build it as a investment, I would be amazed if you find a bank willing to loan on the project, its just too risky for them.

Also, have you even checked if your local city/county/state would allow that? Around me, it would not be allowed on a multifamily. I have to have a licenced and insured GC, and major subs (plumbing, electrical HVAC).

I would also never suggest to someone to start with a fourplex.

Mike C. · Answer

I have no "real" experience in construction and I do not personally know any GCs.  So it is looking like a no go, unless I make friends with one..haha

There are really only 3 difficult things after the shell is up: Electrical wiring, Plumbing, and HVAC.  I have people that are able to help me with the the electrical and plumbing.  HVAC, I planned to have a professional come in and do the duct work on one unit, then copy it for the remaining 3.

I could even have one unit that has the electrical, plumbing, and HVAC completed by a professional, then copy it for the remaining 3, since all the units mirror each other.

Marc Kelly · Answer

Do you have experience in construction? Do you have a licensed GC that can help in the process? or at least provide evidence you are capable to handle the job? IF so, very easy to get financed

Andrew Postell · Answer

@Mike C. most lenders will not allow you to do the work yourself unless you have history of doing this type of work.  And by history, I mean references, job history, etc.  Being insured is very critical to any contractor on a job site.  Based on what you described above this doesn't sound like it would be a likely fit for a mortgage.

Mike C. · Answer

I only called one bank so far. They said I would have to become an insured contractor(I have no idea what this entails).  I was hoping it was not like that across the board.

This is an investment, but if I had to live in one to secure a loan, I would think about doing it.

I will be pulling in favors from family members, but yeah even if it did extend to 6-12 months, it is still worth it.

New construction loan?

Most Popular Reply