How are small new-construction investors controlling lots without tying up $30K–$50K

Question

I’m a small investor/developer doing ground-up single-family construction in Florida.

I’ve completed one project and have another under construction now. The vertical construction financing is not really my problem — land acquisition is becoming the bottleneck as I try to scale.

Right now, buying each buildable lot cash can mean tying up $30K–$50K before I even start construction. That works for one project, but becomes difficult if you’re trying to have 2–4 projects moving at once.

For those of you actually building multiple spec homes, how are you controlling your lots?

Are you using:

• lot options / long closings?
• acquisition lines or land loans?
• acquisition + construction financing?
• private capital or land partners?
• lot banking / takedown agreements?
• something else?

lot options / long closings?

acquisition lines or land loans?

acquisition + construction financing?

private capital or land partners?

lot banking / takedown agreements?

something else?

I’m not looking for a sales pitch as much as I’m trying to understand how experienced builders structure the land side so they’re not burying all of their working capital in dirt.

Would love to hear what has actually worked for you.

Jay Hinrichs · Answer

at those price points most are paying cash.. I built 7 homes in florida and just paid cash for the lots.

depends on the seller though U can try to tie them up with closing to be tied to when permits are issued so your only out the permit fee in the way of negative cash flow. might have to hunt a while before you can find seller that will do this but you cold offer a few grand more for the lot which would be cheaper than borrowing money and or splitting equity.

Stuart Udis · Answer

The equity is ordinarily the challenge with ground up construction. Lenders who fund land, particularly unentitled land will offer low leverage and given the land acquisition price is usually equal to the construction lenders equity requirement it's a wasted transactional cost. At the same time getting investors interested in investing equity before the permits are issued and construction loan is funded is also a challenge. One recommendation is to structure purchases where you settle with permits in hand and therefore can coordinate construction loan funding at the same time as the purchase. Consider a slightly higher purchase price given you are saving transaction costs by having the seller carry the property until permits are issued and construction funding can be obtained.

Another option to consider is raising equity. Assuming you’re developing these homes through multiple LLCs, the cost and administrative burden of SEC compliance and raising capital separately for each deal can become challenging. A feeder fund authorized to invest alongside you in the various development LLCs, potentially with an evergreen structure, may provide more flexibility in deploying capital and managing liquidity. It would still require securities compliance, likely under a Rule 506(b) or 506(c) exemption, but could reduce the need for a separate raise for each project. I’d also consider raising enough capital to cover contingencies, advance construction between bank draws and have some pursuit capital. If you need help, reach out. I have quite a bit of ground up experience and can help with setting up a structure and SEC compliance.

Diana Khan · Answer

@Michael Cadden, I like how you framed this because the land side can really affect how much room an investor has to keep growing. In my work with real estate investors and developers, I’ve seen how much the structure of the agreement matters when you are trying to control a property without putting all of your cash into it upfront. Options, longer closing periods, and other arrangements can give a project more flexibility, but the details of the agreement are important.

This is a topic I really enjoy because it comes up often in my real estate work with investors and developers. I’d be interested to hear what you end up trying as you scale. Happy to stay connected, @Michael Cadden!

Brandye Richardson · Answer

Hi Michael, I saw your post regarding the capital tied up in Florida buildable lots. The Connection Power To Wealth works with land-acquisition, private-capital and ground-up construction funding sources. Since you have already completed one project and have another underway, it may be possible to evaluate a repeatable acquisition-plus-construction structure instead of funding every lot entirely with cash. If helpful, send your current lot pipeline, typical acquisition and construction budgets, completed values, target counties and desired project cadence. Any structure would be subject to lender and project underwriting. Please give me a call 813-696-7548.

Jeremy England · Answer

Same problems as you. But from what I gather there are lenders that will fund a large portion of the lot cost. I dont know the secret yet but some colleagues of mine at the hba have. I plan on sitting down and straight up asking them. Some guys i know have 10-20 lots. I have 6. But bought them all in cash

Kevin Cecchine · Answer

Michael, some builders use a lot line or land loan from a local bank or private lender so they can carry 2 to 4 lots without tying up cash, then roll each lot into the construction loan at start. Option contracts with the lot seller are another route. Happy to share what lenders are doing for spec builders in Florida if it helps.

Michael Cadden · Answer

I am not going to stop asking this question until I figure out the winning formula. I could get some much more done if I had control of the property and construction. I am being told it's on the way you negotiate the terms of the land purchase. Bring it to closing under control, with EMD. This way you can spend 3-6 months getting soft checks out of the way. I am realizing that all deals need to be tied to an asset, and everyone wants to be in 1st position.

Michael Cadden · Answer

This was extremely helpful.. Thank you @Diana Khan

How are small new-construction investors controlling lots without tying up $30K–$50K

How are small new-construction investors controlling lots without tying up $30K–$50K

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