Major Rehab/Construction Loan on Inherited Property

[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