Adding units to an existing property

[Erik Hammagren]

I currently own a property in Oregon that has four units on it. I have plans to add five more units. I am needing advice on how to best structure a commercial loan. I have called a few lenders in my area and the biggest difference in what they offer seems to be the basis for the amount they loan. Some loan based on land + construction costs and others loan on the after construction appraisal costs. Let me add some general figures from my example:

- I currently owe 300k for the land and the existing 4 units

- Current land and property appraises for 400k

- Construction costs are 800k

- After construction appraisal estimated to be 1,400k

- Assume 25% down

The lending strategy that loans out based on after construction appraisal loans 200k more than the other. BUT, where does that money go? After all construction payouts are complete do they then pay me back the difference. If not, it seems a lot of my equity gets eaten by the bank.