Construction Loan / Build to Sell Model

[Vicente Terán]

Hi there! I am working on a new SFR development and looking for input regarding the best "method" for financing new development projects.

My goal is to get the new SFR permit in hand... list the property with renderings prior to construction start.... get the property under contract... then go build the house for the future owner (give them a few liberties with finish selections)

If I go this route, I assume I need to pull a construction loan still under my name... but do I still have to put the construction loan into long term 30 year debt after I complete construction before I can technically "sell" the property to the future owner that is under contract?

Curious what different options exist when doing new home construction where you "sell" or get the property under contract before the development is completed.

Hope this all makes sense, and thank you to everyone in advance that takes the time to respond and share some advice.

[Doug Smith]

An Investor "Spec" Constrution loan looks a lot like a fix-n-flip loan, but you usually need to cover the cost of the lot/land while you get the plans, specs, and permits ready to roll. We usually do 80% of the cost of the land plus the build costs to a maximum of 70% of the As-Completed Value. You don't have to have it sold to start the project and you don't have to convert it to another loan to sell it, but the construction loans are typically interest-only monthly payments (we usually build in the first three payments into the deal) for 12-18 months for each house. I'm happy to discuss it in more detail, but that's the 30,000 foot view of the deal.