Construction loan on Duplexes - Posted by Mark

Posted by Mark on July 07, 2003 at 09:48:11:


Thanks for your response.

I am buying the property & the yet to be built duplex, from the builder. So all the plans, permits, etc. have been taken care of.

Is it unusual for him to ask me to get a loan, or pay for the lot ($50,000), before construction has begun? His other option, was to pay cash for the duplex now ($185,000), but I don’t want to pay interest on this, until it is completed & I have tenants.

I like the subordinate scenario. That would allow me to put less down, and not pay interest until completion.

Thanks again for your info.


Construction loan on Duplexes - Posted by Mark

Posted by Mark on July 06, 2003 at 01:24:37:

I’m in the process of buying 3 duplexes from one builder, all in the same subdivision. The builder wants to close on the lots ($50,000 each) in August, then I would obtain a construction loan for the balance ($135,000 each). The duplexes are due to be completed in November.

Here is my question: Is this normal? My idea was to get a construction loan, then upom completion, I would refinance, and he would get his $$ for the entire balance (including lot). Under my scenerio, I only have to come up with 10% down on each duplex ($18,500 ea), and will not have to pay much interest until completion. Under his request, I would have to come up with $50,000 each, or pay interest for 6 months without any income from the duplexes, until they are completed.

Is his request out of line? What is the best way to go about this? Will a lender allow me to finance the lot, then refinance the entire duplex upon completion?

Thanks for your input!

Re: Construction loan on Duplexes - Posted by Ed Garcia

Posted by Ed Garcia on July 06, 2003 at 11:21:09:

Construction Loan


I have done construction loans.
What you are attempting to do is not as complicated as it seems.
You will need the following.

(1) LAND: Either free and clear, or 50% paid down for a land draw.
(Note) If you wanted, you could buy a lot with NO money down, have the seller subordinate their loan to a construction loan. I know that you?re working with a builder; However, I just want to mention that for the benefit of others who might be reading my post.

(2) PLANS: These plans have to be approved by the city you?re building in.

(3) PERMITS: As you know, sometimes the City can require you to build either conforming structures or off sites, that the City wants. They will also have building standard for your area.

(4) COST: The Bank will require a COST BREAKDOWN of all of your expenses. They will want to see a cash flow chart to pay you on a VOUCHER system. As each phase is down and signed off by city inspectors, the contractor will be paid for that phase. (Note) interesting enough, the bank will take your cost break down and analyze it with their computers. If the cost is more, that will concern them, and they will cut it back. If it?s less, that will also concern them because they will think you short changed yourself in building this project. So In essence, the bank can be instrumental in verifying your cost. However, don?t ever count on anyone but yourself. Do your own, do diligence. (Note) the bank will require at least 10% liquidity on you the borrower.

(5) CONTRACTOR: If you are a Contractor, the bank will want to see your resume and you contractors license. If you are not a Contractor, then the bank will want to have a resume on your contractor as well as a copy of his license, and financial statement.

There are other considerations, but this is enough to get you thinking in the right direction. If everything is done right, you should be in the deal about 70% to 75% LTV on a NEW property. In fact I have seen better depending on area, and size of the deal.

Good luck Mark, I hope this helps.

Ed Garcia