First Ground-Up Build? Financing a Construction Project Without a Track Record

Whether you can finance your first ground-up project depends on the lender. Some will, if you borrow experience you do not have yet and remove as much risk as possible from the deal. Others, including RSC Private Lending, require completed builds before they will fund new construction. Either way, lenders are asking one question: will this specific project get finished?

Know where the bar sits

RSC's New Construction program requires 3+ completed builds, or 5+ completed projects including a build, so first-time builders do not qualify. If you have no builds yet, your first one will need another source of funding, such as your own cash, a partner, or a lender that accepts a proven general contractor in place of borrower experience.

Borrow experience from your GC

At lenders that consider first-time builders, your general contractor (GC) is the most important person in the file. Pick one who is licensed, insured and has built several homes like yours in the same area recently. Their bid, budget and schedule become the backbone of your loan package. A GC with a strong record can offset much of what a lender would otherwise worry about.

Acting as your own GC on a first build is a much harder sell. Most lenders will either decline it or ask for significant construction experience.

Make the project boring

A first project is not the time for a custom design or a tricky lot. Lenders like:

• A standard floor plan, ideally one your GC has built before.
• A lot that is already zoned for the home, with utilities at the street.
• A location with plenty of recent new-home sales or rentals for comps.

Every complication you remove is one less reason for a lender to hesitate.

Bring more cash than the minimum

Expect a first-time file to need extra cushion. That could mean a larger down payment, more cash on hand after closing, or both. That cash shows you can handle a delay or overrun without stopping the job.

Example

Example (illustrative numbers only): A flipper with five completed rehabs wants to try new construction. Instead of a custom design on a sloped lot, he buys a flat infill lot with water and sewer at the street and uses a plan his GC has built six times. He brings 20% of total cost plus three months of interest in cash. When the home is finished, his record shows six completed projects, one of them a build, which meets the experience requirement for RSC's New Construction program on his next project.

What this means for you

Plan the first build to be easy to approve, not impressive. Hire a proven GC, choose a simple plan on a clean lot, and keep extra cash on hand. Each completed build moves you closer to programs that require a track record. In the meantime, RSC's Fix & Flip program welcomes new investors on cosmetic projects, which is another way to add completed projects to your record.

Have a flip to finance now, or builds already behind you? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.