New Construction Funding Options

[Lindsay Diven]

We are securing our first investment deal in Cape Canaveral, FL. We are purchasing the land through seller financing. Part of the deal for the land, is that we don't have to pay the seller any mortgage payments for 5 months while we are constructing the building.

We will be building a duplex on the property and are going through the survey and engineering now to present to the city the week after we close on the land. This way we can start construction immediately. The goal would be to get tenants in there on or before our first mortgage payments are due to the land seller.

My husband is a GC and will be managing the build. He does commercial construction for his day job, but will be able to use that expertise to build the units.

We were planning to pay cash for the construction, but now I am thinking that maybe we should get some funding for construction (part or all) so we can use cash as a reserve and/or other investments.

We do not plan on living in the units. What are some other ways in which we can fund the construction? Should I just go to our local bank?

[Gary E. London]

Originally posted by @Don Harris:

You will not be able to obtain a construction loan without the bank paying off the seller's first mortgage position. The bank will not take a 2nd position for construction finance.

 I'm not an expert but one route could be to ask the seller to subordinate his first position to the bank and move down to a second. The bank doesn't care who is behind them as long as they are in first position. Because your seller appears to be real flexible this appears to be possible option for you. Also you could do a substitution of collateral and move the seller's note to another property you own that would be acceptable to him. These are just some creative ideas that your attorney could explain in further detail.