Quote from @Mike Neville:
Brand new to real estate investing.
I’m looking for advice on the best way to finance a project.
My friend has done 3 of these so far, and I am planning to join him on the next one with hopes of expanding the business in the coming years.
Here is the short of what we will be doing:
- Buy a house for ~ $500-800k.
- Remodel if needed.
- Split property into two.
- Build a DADU.
- Sell house and DADU separately.
- (Depending on size of lot we may be able to build an ADU and DADU)
- Approximate cost of the DADU will be $300k.
- Total time from purchase to sale of all properties will be 6-10 months
His previous projects were financed with his own HELOC and some money from a partner he no longer wants to work with.
Most of the reading and research I’ve done so far has been confusing in regard to mortgages/loans for our situation.
Every time I search for small business or construction-type loans, it gives me information on loans for those building their own house to then live in later.
So here are my questions:
First, what is the best way to get a mortgage for the initial house purchase? In my brief research so far, it seems as if I can’t simply take out a traditional mortgage since we don’t plan to live there.
Second, what is the best way to take out a loan for construction costs? Do traditional banks give these out? Is an SBA 7a loan something that could be used down the road? Is hard money our only option right now?
Lastly, is there any type of loan that combines the two? Meaning, could we get a mortgage/loan for, say, $1M, buy a house for $700K, and use the rest for construction costs of the DADU?
Thank you for any advice you can give!
Also, any suggestions for good beginner books/blogs/etc. to read would be much appreciated!
Hey Mike - great questions! I'm in the process of doing this myself currently. There's some creative ways you can finance the project. Depends if you are pre or post condo-ization, but you can have the main house & the DADU construction financed separately.
First, what is the best way to get a mortgage for the initial house purchase? You can do a 20% conventional loan here. There's other investor friendly loans & 1 lender I work with that can do 10% down as an investment loan (no not a second home loan; investment loan).
Second, what is the best way to take out a loan for construction costs? I think hard money or private money is typically a smoother process & less hurdles to work with. Otherwise, you can try to structure some equity or debt deals with friends to finance that way as well.
Lastly, is there any type of loan that combines the two? Yes; there are conventional loans that allow you to build DADUs now as well.
If you're curious, I'm talking about a lot of this stuff on my Instagram as well: @helloericyu.
Good luck!
Lots of details involved here
