Major Rehab/Construction Loan on Inherited Property

Member since 2023 · 43 posts · 28 votes

2y

All,

First, thank you in advance for all the insight I will receive from all of you. I'm a real estate investor who currently lives in Washington, DC. I have 3 doors and am trying to expand further.

My sister and I will inherit our grandmother's property in New Orleans, Louisiana. The house is paid off free and clear, but we have no intention of selling it; we want to keep it in the family and turn the lot into a vacation home, Airbnb, or even a rental. The property will likely require substantial work to make it a rental. Furthermore, the property sits on a nearly 6,000-square-foot lot. We believe we have enough space to rezone the lot and construct a duplex, bringing the number of doors from 1 to 3.

We have a couple of questions. Please excuse my ignorance.

1) In an attempt to learn from folks who have done this, what is the best way to finance the gut rehab of the existing property and the new construction of a duplex?

My initial thoughts would be to secure a construction loan for the total rehab amount based on the entire property's ARV. In order to not have to put any of our own money into this deal, we intend to leverage the equity of my Grandma's home as a down payment for the loan.

2) Should we leverage a construction loan or some other form of financing?

3) Is all of this reasonable and possible to do? My initial assumptions are yes, based on the “build to rent” strategy. We still need to work with the city to ensure we can rezone and get permits to start construction (but for this thread, it's implied that we will get the permission to rezone and start construction.)

4) What other steps should I be thinking of?

Thank you again for all the insight.

-Laurent

1) Utilizing a construction loan for the rehab and new construction is a common approach in real estate investing. However, it's important to carefully consider the terms and interest rates of the loan to ensure it aligns with your financial goals. Additionally, be sure to have a solid business plan in place to present to potential lenders.

2) In addition to a construction loan, you could also explore other financing options such as traditional mortgages, lines of credit, or even private investors. Each option has its own benefits and drawbacks, so it's important to research and compare to find the best fit for your specific situation.

3) It is reasonable and possible to turn your grandmother's property into a profitable vacation home, Airbnb, or rental property through the construction of a duplex. As long as you follow the necessary steps and obtain the required permits and approvals from the city, you should be able to move forward with your plans successfully.

4) In addition to securing financing and obtaining the necessary permits, you should also consider creating a detailed budget and timeline for the rehab and construction process. It's important to carefully plan out each step of the project to ensure it stays on track and within budget.

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Laurent N.

OP

Investor · Member since 2020 · 7 posts · 1 vote

2y

Quote from @Account Closed:

Quote from @Laurent N.:

All,

First, thank you in advance for all the insight I will receive from all of you. I'm a real estate investor who currently lives in Washington, DC. I have 3 doors and am trying to expand further.

My sister and I will inherit our grandmother's property in New Orleans, Louisiana. The house is paid off free and clear, but we have no intention of selling it; we want to keep it in the family and turn the lot into a vacation home, Airbnb, or even a rental. The property will likely require substantial work to make it a rental. Furthermore, the property sits on a nearly 6,000-square-foot lot. We believe we have enough space to rezone the lot and construct a duplex, bringing the number of doors from 1 to 3.

We have a couple of questions. Please excuse my ignorance.

1) In an attempt to learn from folks who have done this, what is the best way to finance the gut rehab of the existing property and the new construction of a duplex?

My initial thoughts would be to secure a construction loan for the total rehab amount based on the entire property's ARV. In order to not have to put any of our own money into this deal, we intend to leverage the equity of my Grandma's home as a down payment for the loan.

2) Should we leverage a construction loan or some other form of financing?

3) Is all of this reasonable and possible to do? My initial assumptions are yes, based on the “build to rent” strategy. We still need to work with the city to ensure we can rezone and get permits to start construction (but for this thread, it's implied that we will get the permission to rezone and start construction.)

4) What other steps should I be thinking of?

Thank you again for all the insight.

-Laurent

1) Utilizing a construction loan for the rehab and new construction is a common approach in real estate investing. However, it's important to carefully consider the terms and interest rates of the loan to ensure it aligns with your financial goals. Additionally, be sure to have a solid business plan in place to present to potential lenders.

2) In addition to a construction loan, you could also explore other financing options such as traditional mortgages, lines of credit, or even private investors. Each option has its own benefits and drawbacks, so it's important to research and compare to find the best fit for your specific situation.

3) It is reasonable and possible to turn your grandmother's property into a profitable vacation home, Airbnb, or rental property through the construction of a duplex. As long as you follow the necessary steps and obtain the required permits and approvals from the city, you should be able to move forward with your plans successfully.

4) In addition to securing financing and obtaining the necessary permits, you should also consider creating a detailed budget and timeline for the rehab and construction process. It's important to carefully plan out each step of the project to ensure it stays on track and within budget.

Emma,

Thank you for the insight! I think the budget piece is really important! What advice do you have for calculating the ARV? I ask because I think this will factor how much the rehab will cost and how much the ensuing loan will cost as well.

Additionally what advice do you have to ensure the rehab/construction stays on time? I heard of delivering payout in segments after key parts of the rehab are completed, but should I hire a project manager or be on site?

-Laurent

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Nick Bednarczyk

Lender · Sarasota, FL · Member since 2024 · 187 posts · 24 votes

2y

Quote from @Laurent N.:

Quote from @Account Closed:

Quote from @Laurent N.:

All,

First, thank you in advance for all the insight I will receive from all of you. I'm a real estate investor who currently lives in Washington, DC. I have 3 doors and am trying to expand further.

My sister and I will inherit our grandmother's property in New Orleans, Louisiana. The house is paid off free and clear, but we have no intention of selling it; we want to keep it in the family and turn the lot into a vacation home, Airbnb, or even a rental. The property will likely require substantial work to make it a rental. Furthermore, the property sits on a nearly 6,000-square-foot lot. We believe we have enough space to rezone the lot and construct a duplex, bringing the number of doors from 1 to 3.

We have a couple of questions. Please excuse my ignorance.

1) In an attempt to learn from folks who have done this, what is the best way to finance the gut rehab of the existing property and the new construction of a duplex?

My initial thoughts would be to secure a construction loan for the total rehab amount based on the entire property's ARV. In order to not have to put any of our own money into this deal, we intend to leverage the equity of my Grandma's home as a down payment for the loan.

2) Should we leverage a construction loan or some other form of financing?

3) Is all of this reasonable and possible to do? My initial assumptions are yes, based on the “build to rent” strategy. We still need to work with the city to ensure we can rezone and get permits to start construction (but for this thread, it's implied that we will get the permission to rezone and start construction.)

4) What other steps should I be thinking of?

Thank you again for all the insight.

-Laurent

1) Utilizing a construction loan for the rehab and new construction is a common approach in real estate investing. However, it's important to carefully consider the terms and interest rates of the loan to ensure it aligns with your financial goals. Additionally, be sure to have a solid business plan in place to present to potential lenders.

2) In addition to a construction loan, you could also explore other financing options such as traditional mortgages, lines of credit, or even private investors. Each option has its own benefits and drawbacks, so it's important to research and compare to find the best fit for your specific situation.

3) It is reasonable and possible to turn your grandmother's property into a profitable vacation home, Airbnb, or rental property through the construction of a duplex. As long as you follow the necessary steps and obtain the required permits and approvals from the city, you should be able to move forward with your plans successfully.

4) In addition to securing financing and obtaining the necessary permits, you should also consider creating a detailed budget and timeline for the rehab and construction process. It's important to carefully plan out each step of the project to ensure it stays on track and within budget.

Emma,

Thank you for the insight! I think the budget piece is really important! What advice do you have for calculating the ARV? I ask because I think this will factor how much the rehab will cost and how much the ensuing loan will cost as well.

Additionally what advice do you have to ensure the rehab/construction stays on time? I heard of delivering payout in segments after key parts of the rehab are completed, but should I hire a project manager or be on site?

-Laurent

Most lenders will require rehab funds to br paid after certain pieces of work completed and verfied. This keep the lender and borrower safe from scams. Youll be fine if you plan on utlizing an experienced GC to do the work as well. Goodluck to you and your family.

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Major Rehab/Construction Loan on Inherited Property

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