New Construction Duplex

[Justin Bryant]

I have the opportunity to invest in a new construction duplex. Construction costs are $180k and there are identical units built on the same street that appraised at $220k. I've run the numbers on the cash flow and it looks like it should have great cash flow once it is completed and rented out. If it was already built I would really have no qualms with moving forward with the deal, I'm just not super familiar with the construction process.

I have a couple of questions I haven't found good answers for yet. First, should it be a red flag that construction costs are so much lower than the appraised value? I don't fully understand why they wouldn't just charge the appraised value if that's what it is actually worth unless they are cutting corners on construction.

What would be the best way to pay for the construction? I've looked into the construction to permanent loan and haven't found one that is available for investing in a duplex. Right now the best option to me seems like using a HELOC on my current residence to pay for construction. Then once it is finished I could get a traditional mortgage on the duplex to pay back the line of credit. If there are better options for financing I haven't found them or thought of them.

Also any other tips or things others have run into on new construction projects would be really helpful!