Just starting out - how to finance
Member since 2026 · 1 post · 1 vote
Just starting out - how to finance
6 Replies
- MD/DC · Member since 2024 · 1k+ posts · 1k+ votes1mo
Hi great questions. Not having cash is tricky with STRs in general due to the outlay on the front end. Others will disagree and there is great value to leverage but I was advised early on by a seasoned RE broker never to tie up my home with business which I have followed. If the land is cheap and buildable that might be worth considering but raw land doesn't provide returns so you would need to be able to cover mortgage.
- 1moRay WilliamsBusiness MemberLender · Denver, CO · Member since 2017 · 145 posts · 66 votes
Gabe, ground up STR builds like this usually break into two separate financing questions, and it helps to treat them that way instead of one big decision. The first is how you get the raw land and site work done, the second is how you fund the actual cabin once you're ready to build, and those two often use completely different loan types. A HELOC or cash out refi against your $250k in equity is a common way investors fund the land purchase and site prep (clearing the old cabin, utilities, grading) since a raw parcel with no structure on it is hard for most construction lenders to finance well on its own. Once you're ready to build, a construction loan converts to permanent financing (sometimes called a construction to perm loan) based on the completed appraised value of the cabin, and the lender draws funds in stages as work is finished rather than handing you the full amount up front. But will the lender allow you to build , which for alot of construction loans is a hard stop, unless you are a builder by trade. Your idea of putting a temporary trailer on the site to generate income while you save toward the build isn't unusual either, though you will want to check with the county on what's allowed for temporary dwellings and STR permitting before you count on that income in your plan. The general point Jules made about not wanting to lean too hard on your primary home is fair, but a HELOC used specifically to acquire an appreciating asset is a different risk profile than using it to cover day to day expenses. I'd talk to a couple of construction lenders in your area early, before you make an offer, since not every lender does ground up builds and the ones that do vary a lot on how they structure the draws. I am a lender and STR owner who has built a spec home before so I just wanted to share something that may be helpful for you. Best of luck.
- 1moVijay FriedmanBusiness MemberMiami, FL · Member since 2026 · 766 posts · 121 votes
Quote from @Gabe Pattison:
Hi everyone, I'm brand new here it's nice to meet you all. My wife and I have been talking about buying property to build a short term rental cabin on in central Minnesota. We have a property in mind, it has an abandoned cabin on it now that would need to be torn down. We know who owns the property but have not reached out yet.
I know how to physically build the cabin and prep the site. But what I am unclear on is how best to finance it. I don't have a ton of extra cash that I could put into it that is liquid now. But I do have around $250k in equity in my home. I am also considering if it would be best to figure out a way to buy the property now even if I can not build the new cabin right now. Possibly just clearing the site and putting a nice trailer or something on it to rent out for a year or two. Any ideas or guidance would be appreciated!
@Gabe Pattison
It sounds like you've already thought through the construction side, which is a big advantage. Before deciding on the financing, I'd map out the entire project—from land acquisition through construction and the eventual STR operation—to make sure the financing matches each stage. Having that roadmap up front can make the project much smoother and help avoid running out of capital midway. - 1moAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
HELOC can be great but you must understand the risks, if it does not work you can lose your house if you cannot cover the payment. Have you considered taking on a capital partner? Seems like you have the deal and if it pencils out you may be able to take on a debt and/or equity partner where you do not have to put your home up as collateral. If you do not want a long term partner if it is a good deal you should be able to refi them out once built.
Vacation Rentals of Florida53 Reviews - Memphis, TN · Member since 2024 · 180 posts · 223 votes1mo
Hi Gabe!
Welcome to Bigger Pockets!
- 1moTim SwierczekPro MemberLender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
@Gabe Pattison Begin with the end in mind. You will need to know the project from start to finish. The end is booking your guests. Which means it must be furnished; you must have a cleaner, etc. It would be a disaster to finish the build and then not be able to rent it because you didn't have the cash pre-saved to get it furnished and appointed to the level guests expect in Central MN. You also want to consider when it will be completed. Can you finish Construction by April 1, so that you can furnish it and have it on the STR platforms by May 1? So, you can have a possible guest for Memorial Day weekend?
I like your idea of a rental camper while you cooridinate an plan the whole process, and you are confident you have the cash to execute. This is a big project that needs cash and access to financing.
You didn't specifically say that you plan to do the work, but your post appears to indicate that you plan to do some of the build. That is a very important aspect of financing. If you plan to build the cabin, you will find a much more difficult path to financing. Most lenders do not want to be on the hook for a first-time builder's mistakes. I do financing for a living, and I can't think of anyone that we use that would allow you to do the work, unless you have an experienced builder that oversees the project and "hires" you for some of the work, or partners with you.Lastly, and most importantly, I would recommend you look hard at the numbers and why you're doing this. If you are looking to build a second home for your family and offset some of the costs, I think you will be very happy. If you are doing this as an equity play, you will likely be very happy. If you intend to cash flow and have a cabin for free, it's not going to happen.
Rental cabins in Minnesota DO NOT MAKE MONEY! Of course, there are exceptions for cabins that have been owned for generations, but a Minnesota cabin is a horrible cash flow investment. You get 3 good months of rental, and 1-2 subpar months; the rental income received will nowhere near cover the holding costs of a new-build cabin.
I'm not telling you to walk away from the idea, only to consider these points and find a way to do this with extreme planning so you are set up for success.
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