How to finance new construction?

5 Replies

We are looking at developing a city block into several MF units (per city codes). We are looking at way as to finance this new project. What have you found as the best financing for new construction of investment properties?
@Aubrey H. In Ontario Canada the easiest route would be buying the land free and clear. Spend cost effective ways to improve the property. Get the land approved to build highest and best use "example 60 unit MF building". Get an appraisal for new value. Present your building proposal to local bank or credit union who loans construction. Another way which I don't recommend for beginners is get the land under contract and then propose to a lender what your vision is to build. This way the lender will give you zero credibility unless you have deep pockets to back. 1st route you own the land free and clear and you changed zoning showing some experience going in right direction. It is not easy to get a loan for land. So when you own it free and clear the bank will lend you against the improved land. Make sure you have deep contingency plan when building and development because things can go sideways in a hurry.
@Bob Green We close on the property around Nov. 1st. Right now on the block there is a very large duplex (each side about 2,300 sq feet) everything else is open land. For the property our loan will be 195k with an appraised value of 300k.

Hello Aubrey,

I understand loan amount and what the appraised value is but what amount are you acquiring the land for? - Additionally what is the cost to build and the after completion value?

Depending on how long you are projecting for development, you might look at a hard money lender for construction and then finance them out post-completion. With only a month until closing, bank financing will be tough. With more time, you should be able to find a more conventional lender to provide temp to perm financing which would cover construction (temp) and then convert to permanent financing upon stabilization.