Construction Loan then Refinance as Rental

13 Replies | Upstate New York, New York

I have a village lot in WNY that I am considering building a SFR and then renting it out for about three years. So I would need a construction then refinance loan. Any recommendations on lenders that would consider this type of deal?

I would be doing some of the work myself and would be looking at a loan of around $70k.  I already own the land.

Thanks.

The first question most Lenders will want to know is do you have any ground up construction experience or any experience with extensive rehab budgets. Typical Max offer on ground up construction would be around 60% of the ARV

First thing I would do is create a realistic pro-forma then delete it and do it again being even more conservative. Then have someone look at it. After that make corrections and run it one more time. Once you have something you're confident in call any lender you can find to see who will give you a shot. But like @Tarik Turner just mentioned, lack of experience will not only make it harder but not give you the best terms. This is why I suggest calling/emailing any lender you can find. I also suggest maybe partnering up with someone who's done it before. (50% of a deal is better than 100% of no deal)

A few other things to consider, have you looked at the village building & zoning codes to make sure what you want to build is allowed? Have you paid an architect to draw up preliminary plans? DM me if you're interested in this. Contractors can then use this to start giving you quotes which will help you when creating a pro-forma, which in turn helps you out with the lender. Have you thought of what kind of legal entity you will use to protect yourself and your assets should this venture go sideways for any reason? Lastly, have you considered the costs associated with starting this process? There are a lot of costs that can come up long before you even get any money from a lender, plus the personal time you put into it.

Hope this helps in any way.

Originally posted by @Cheryl James :

I have a village lot in WNY that I am considering building a SFR and then renting it out for about three years. So I would need a construction then refinance loan. Any recommendations on lenders that would consider this type of deal?

I would be doing some of the work myself and would be looking at a loan of around $70k.  I already own the land.

Thanks.

Where is WNY? And your going to go from a empty lot to a SFR with $70k!? Being highly experienced in construction I can almost guarantee you're missing some vital soft cost as well as site preparation cost.

Originally posted by @Jared W Smith :
Originally posted by @Cheryl James:

I have a village lot in WNY that I am considering building a SFR and then renting it out for about three years. So I would need a construction then refinance loan. Any recommendations on lenders that would consider this type of deal?

I would be doing some of the work myself and would be looking at a loan of around $70k.  I already own the land.

Thanks.

Where is WNY? And your going to go from a empty lot to a SFR with $70k!? Being highly experienced in construction I can almost guarantee you're missing some vital soft cost as well as site preparation cost.

Wow I completely missed that $70k part. I think Jared has a good point. Plus I think unless you have your own company in whatever field of work it is you plan on doing yourself, I don't think a potential lender is going to like that. I would assume a lender would want a qualified and licensed person performing the work.

Originally posted by @Cheryl James :

I have a village lot in WNY that I am considering building a SFR and then renting it out for about three years. So I would need a construction then refinance loan. Any recommendations on lenders that would consider this type of deal?

I would be doing some of the work myself and would be looking at a loan of around $70k.  I already own the land.

Thanks.

Hi @Cheryl James. I know of some awesome "one-time close" construction to perm mortgage loans that you may want to consider. 

70K I think is absolutely doable if you look at things a little more broadly.  Although I may have underestimated the foundation cost a bit.  Even if it is 80K, it wouldn't really change things all that much.

33K for a kit home shipped to site.  10K for slab foundation. 10k for heat, electric and plumbing. 8k for roof. That leaves 9k for kitchen and bathroom (small galley style kitchen).  I am looking at a simple 980 square foot open floor plan with a loft.

I would hire out the foundation, the plumbing, heat, electric panel, and roof. 

@Cheryl James - Nope. I didn't catch a city/location, nevertheless, if you are in any part of NY especially further north where it is colder, slab on grade foundation likely won't meet NY Code. You will need a turn-down foundation which has a specific detail for shallow foundation installation which is more costly than regular slab on grade or extend foundation to below the frost line per NYS 2015 IRC R403. Here in Westchester County foundations extend to 42-48" below grade. Also, your "kit home" will still need to meet the zoning and building codes for your locale, so plan on some modifications.

Some cost that it seems that you have not factored: 

1- Utility service connection from street/main lines to your home by locale provider (gas, elec. water, sewage, etc.). [If you are doing a more sustainable approach then triple your budget for MEP/HVAC as it is a more complex system to have a self-sufficient system.] 

2- Foundation details as mentioned above. 

3- Soft Cost: Architecture & Engineering cost for permitting, filings, inspections, etc. (Once again depends on local municipality) 

4- Grading, site clearing, curb cut(s), landscaping, hardscaping, driveway, etc. 

5- 15-20% min. contingency for unknowns and problems

-Jared Smith, RA

Disclaimer: I am an architect, but I am not YOUR architect. I am not giving professional advice only general information. Contact a local architect/engineer for a detailed consultation specific to your project/locale.


@Jared W Smith Thanks for your input as I'm sure you know what you are talking about.  There are plenty of houses here on slabs and there are a lot on the lakeshore in particular that were built on pier foundations.  Perhaps the building codes have become more restrictive over the years.

My grandfather built three homes in my lifetime.  Two of which had full basements.  The third, also the most recent one was built on a slab.  We also have many Amish family contractors that have completely changed the landscape for building in our little small town community.  They have driven the price of land up and the cost of goods and labor down.  I guess like anything else in this world ... you don't know until you know.  I will definitely work on getting my hard and soft costs down on paper before I jump in.

Okay, I see. There is a term known as "grandfathered" meaning a property/home can continue in non-compliance if completed/built prior to certain code/zoning issuances and as long as it remains the same occupancy (residential use). This a general simplified definition. This may explain those three home. 

If your new home build will not need to meet any new codes/zoning, then your build could differ. However just because it doesn't need to meet these requirements doesn't mean they shouldn't be reviewed. Codes are minimums for a satisfactorily safe and functionally built home/building. There's a rhyme and reason for 99% of it.  

I think your first step should be to visit your local planning/building department and find out if you need permits for your build and if plans are needed... AND if so, will they need to be signed & sealed by an architect or engineer.@Cheryl James All the best on your project.    

@Cheryl James , yes I read that but what I was explaining has nothing to do with a person. Yes ironic, but "grandfathered" is an actual term as I explained above for the three house you explained were built in your lifetime. It's likely these were built before codes implemented stricter requirements. Therefore those three homes would not meet current Codes/Zoning. But they are allowed based on being "grandfathered." Google the word.  

And if yes, permits and stamped plans are needed, you'll likely need to meet the current codes and zoning.