Ground-Up Construction Loans for Real Estate Investors
AAPL Member · Direct Lender Since 2016 · NMLS #1979189
Building from the dirt up is a different animal than buying an existing property, and the financing has to match. I’ve watched investors try to fund a new build with the wrong loan — a standard purchase mortgage, or even a rehab loan — and run straight into a wall, because none of those products are designed to release money in stages as a structure rises out of the ground. Ground-up construction loans are. They fund land, materials, and labor through a draw schedule that tracks the build, so the money shows up when each phase is ready to pay for. Tidal Loans has financed builders and investors since 2016, and this page walks through how these loans actually work.
A ground-up construction loan is short-term financing for building a new structure from scratch on a vacant or cleared lot. It’s underwritten around the project — the land, the plans, the budget, and what the finished property will be worth — and it disburses in milestones rather than in one lump sum. For investors developing spec homes, infill projects, or small multifamily, it’s the financing built for the job.
Sizing a ground-up deal? Model loan size, non-Dutch interest carry, and build-to-sell vs build-to-rent returns with our New Construction Deal Analyzer.
What Is a Ground-Up Construction Loan?
What Is Ground-Up Construction?
A ground-up construction loan funds the creation of a brand-new building, covering the costs of construction as they’re incurred rather than handing you the full balance at closing. It’s also called new construction financing or a build loan. The structure is what sets it apart: instead of a single disbursement, the lender funds the project in a series of draws tied to completed stages of work — the staged-funding model that defines the product.
These loans are short-term by design, typically running twelve to twenty-four months to match a build timeline, and they’re meant to be replaced by permanent financing or paid off by a sale once the structure is finished. Like other investor financing, they’re business-purpose loans secured by the real estate, so you can close in an LLC and the underwriting centers on the project rather than your personal paystubs. Interest usually accrues only on the funds actually drawn, not the full loan amount, which keeps your carrying cost down in the early months when little has been disbursed.
Because you’re financing something that doesn’t exist yet, these loans lean more heavily on planning than any other product we offer. The plans, the permits, the budget, and the builder all matter — and that’s exactly as it should be.
How Ground-Up Construction Loans Work
Two numbers drive most construction loans. The first is loan-to-cost, or LTC — how much of the total project cost we’ll fund. We go up to 90% of total cost on a qualifying deal, with you covering the rest through land equity or cash. The second is loan-to-after-completion-value (ARV) — we also keep the loan within 75% of what the finished property will be worth. The deal has to pencil out on both measures, and whichever one is tighter sets your loan amount.
Here’s how that looks on a real spec build. Say the lot costs $80,000 and the construction budget is $220,000 — a $300,000 total project cost. At 90% LTC, the loan covers up to $270,000 and you bring roughly $30,000, often satisfied by the equity in the land. Now the ARV check: if the finished home is worth $420,000, our 75% ARV ceiling is $315,000 — comfortably above the $270,000 loan, so LTC is the binding number and the deal pencils. But flip it: if that same build only appraised to $340,000 finished, 75% of ARV is $255,000 — now ARV is the tighter limit, your loan drops to $255,000, and you’d bring more cash. That’s why we underwrite both numbers up front, before you’re committed.
The mechanics run on the draw schedule. Rather than releasing all the money at closing, the lender disburses funds in stages as construction hits defined milestones — foundation, framing, mechanicals, drywall, finish work, and so on. When a stage is finished, you request a draw; an inspector verifies the work is complete, and the funds wire directly to you. You typically pay interest only on the balance drawn so far, which means your early payments are small and grow as the project progresses. To sketch the numbers on a specific build, reach out and we’ll model the loan amount, draws, and carry on your exact scenario.
Construction Draw Process Best Practices
That staged structure protects everyone. It keeps the project funded in step with progress, it prevents money from getting ahead of the work, and it gives both you and the lender a clear, milestone-by-milestone view of the build.
What Investors Build With These Loans
The most common project we fund is the spec home — building a single-family house to sell on completion. The construction loan funds the build, and the sale is the exit. It’s the new-construction cousin of a fix and flip; the difference is you’re creating the property instead of renovating one, but the investor and the playbook are often the same.
The second is infill and teardown development, building on a vacant urban lot or replacing an outdated structure with something far more valuable. The third is build-to-rent, where investors construct a property specifically to hold as a rental and refinance into a long-term DSCR loan once it’s complete and leased. And the fourth is small multifamily construction, building a duplex, triplex, or small apartment building — projects that often graduate into our multifamily lending program as they scale in size.
Ground-Up Construction Loan Requirements
New construction asks more of the borrower than any other short-term loan, and for good reason — you’re financing a plan, not a finished asset. Here’s what we weigh.
Experience carries real weight here. Builders and investors who’ve completed ground-up projects before get the strongest terms, because execution risk is the biggest variable in any construction deal. First-time builders aren’t shut out, but we look more closely at the team — especially the general contractor — and the plan.
The project package matters: architectural plans, a realistic and detailed construction budget, the permits or a clear path to them, and a timeline. A tight, credible budget tells us you understand the build; a vague one is a red flag.
Land and equity are part of the structure. You’ll generally bring the lot — owned outright or being acquired as part of the deal — and some cash, which sets your loan-to-cost. Credit is reviewed and stronger credit improves pricing, though the project and the team drive the decision more than your score does.
And as always, the exit has to be clear — a sale on completion, or a refinance into permanent financing such as a DSCR loan for a build-to-rent hold. We underwrite that exit before we fund, because a construction loan without a defined payoff is a project without a finish line.
Ground-Up Construction vs. Fix and Flip
These two products serve the same kind of investor at different points on the development spectrum. A fix and flip loan renovates an existing structure; a ground-up construction loan creates a new one. Fix and flip draws fund a rehab budget against after-repair value; construction draws fund a build against after-completion value and a far more detailed milestone schedule. Construction is the more involved of the two — longer timeline, more moving parts, heavier reliance on plans and permits — but for many of our borrowers it’s the natural next step once they’ve cut their teeth on rehabs and want to control the entire product from the foundation up.
The Pros and Cons of Ground-Up Construction
Building new has a real advantage over a rehab: far fewer hidden surprises. On a fix and flip you tear open a wall and find old wiring, rot, or a plumbing problem that wasn’t in the budget — the renovation discovers the property’s problems as it goes. With ground-up, you’re building to a known plan and a known spec, so the budget you start with is much closer to the budget you finish with. Everything is new, which also means fewer code issues and a cleaner, more marketable product on exit.
The trade-off is time. A ground-up build runs longer than a typical moderate renovation — you’re moving through permitting and a full construction timeline, not a cosmetic refresh — and that longer hold means more interest carry and more exposure to a shifting market before you exit. It also asks more of you up front: real plans, real permits, a credible budget, and a builder who can execute. There are more moving parts, and execution risk (contractor, weather, material and labor costs) is the biggest variable in any build. None of this is a reason to avoid ground-up — it’s a reason to plan it tightly and underwrite the exit before you start.
How Construction Loans Get Paid Off
Every ground-up loan ends one of two ways. If you’re building to sell, the sale of the finished property pays off the loan and books your profit. If you’re building to hold, you refinance the construction loan into permanent financing once the property is complete and, for a rental, leased and stabilized — most often a DSCR loan that qualifies on the new property’s rent. In some cases a bridge loan carries the project through the gap between completion and permanent financing, especially if leasing or final inspections take time. We map the exit at the start so the whole structure points cleanly at the finish.
Applying With Tidal Loans
As a direct lender, we fund our own construction loans and manage the draw process in-house, which keeps inspections and disbursements moving so your build never stalls waiting on money. The process starts with the project package: the lot, the plans, the budget, the builder, and your exit. We’ll review the numbers and give you a real quote on your scenario. From there, you draw as you build: when a stage is finished, you request a draw, we send an inspector out to verify the work, and we wire the funds directly to you — fast, so the job never stalls waiting on money.
What builders tell us they value is a lender that understands construction — one that reads a budget critically, sets a realistic draw schedule, and doesn’t slow the job down at every stage. We’d rather get the plan right at the start than fight problems halfway through framing.
Why Investors Choose Tidal Loans
Tidal Loans has financed real estate investors and builders since 2016 as a direct lender working in 42 states across the country. Our founders built the firm around investor financing, and construction is one of the areas where that focus matters most — we understand draw schedules, contractor risk, and the difference between a budget that’s been thought through and one that hasn’t. We’ve funded spec builders, build-to-rent investors, and small multifamily developers, and much of our business comes back to us project after project.
Tips to Build and Scale Fast
Ground-Up Construction Loans by State
We fund ground-up construction in 42 states — everywhere we lend except Minnesota, South Dakota, North Dakota, Oregon, Vermont, Utah, Nevada, and Arizona. Building costs, permitting timelines, and lot availability vary enormously from one market to the next, so we maintain dedicated construction resources for the states we’re most active in. As those state pages go live they’ll be linked here, covering local conditions across markets like Texas, Florida, Georgia, Tennessee, Louisiana, Ohio, and beyond. If you’re planning a build in a specific state, reach out and we’ll quote the project directly.
Frequently Asked Questions
You draw as you build. When a construction stage is finished — foundation, framing, mechanicals, finish work — you request a draw. We send an inspector out to verify the work is actually complete, and then we wire the funds directly to you, fast, so the next phase isn’t waiting on money. You typically pay interest only on the funds drawn so far, so your early payments are small and grow as the build progresses.
We fund up to 90% of loan-to-cost (LTC), not to exceed 75% of the after-completion value (ARV). Both numbers matter: LTC caps how much of your total project cost we’ll fund, and the 75% ARV ceiling keeps the loan within a safe percentage of the finished value. Whichever is tighter sets your loan amount, and you cover the rest with land equity or cash.
No. You don’t have to already own the lot — we can fund a portion of the land cost as part of the construction loan, so the same loan that builds the house can also help you acquire the dirt. If you’re weighing buying land and building together, we can structure the lot purchase and the build into a single construction loan.
In our tier-one markets, no — first-time builders can qualify. In other markets, we require one of the following: experience as the owner, the builder acting as the borrower, or your builder signing a completion guaranty at closing. The point is that someone on the deal can credibly carry the build to the finish line; a strong, experienced general contractor goes a long way toward making a first project fundable.
“Dutch interest” means the lender charges you interest on the entire committed loan amount from day one — including the funds that haven’t been drawn yet and aren’t doing anything. Non-Dutch (which is how we structure our construction loans) charges interest only on the money you’ve actually drawn. On a $270,000 loan where you’ve only drawn $50,000 for the foundation, that difference is real money every month. It’s one of the first things to ask any construction lender, because it directly changes your carrying cost in the early months when little has been disbursed.
The three that matter most are cost overruns, timeline slippage, and the exit. Material and labor costs can move, so a budget without a contingency line is the most common way a build goes sideways — read more on managing construction cost overruns. Timeline is the second: permitting delays and a longer build extend your interest carry and your exposure to a shifting market before you sell or refinance. And the exit is the third — a build with no defined payoff is a project with no finish line. We mitigate all three the same way: a realistic budget with contingency, a vetted builder, a term with margin built in, and a defined exit underwritten before we fund.
A fix and flip loan renovates an existing structure, while a ground-up construction loan builds a new one from the ground up. Construction loans rely on detailed plans, permits, and a milestone-based draw schedule, and they generally run longer because building takes more time than renovating. Both are short-term investor loans that exit through a sale or a refinance, but construction is the more involved of the two.
Most run twelve to twenty-four months to match a typical build timeline, with the exact term set to fit your project’s scope and schedule. They’re short-term by design and meant to be replaced once the structure is finished — either paid off by a sale or refinanced into permanent financing. We set the term with realistic margin so the build has room to reach completion without scrambling against the clock.
Yes. Build-to-rent is a common use: you finance the build with a construction loan, then refinance into long-term financing such as a DSCR loan once the property is complete and leased. The DSCR refinance qualifies on the finished property’s rental income rather than your personal income, which makes the transition from construction to a permanent hold clean and predictable.
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Tell us the property, the numbers, and your exit. We underwrite the deal — not your tax returns.