Yes! If you’re using a hard money lender for construction there are a few things to be aware of. First, the good news. Hard money lenders can fund construction projects based on the as-built value. Little City Investments can lend on multi-unit and multi-lot construction projects in Austin and Houston.


We qualify the property, not you, so your credit and income are not really relevant. We base our hard money loans on the property value, not your financial history. Bankruptcy, short sale, foreclosure, sub-500 credit score? No problem. We’re serious.


The bad news? We have to base the amount released at closing on the land value, today, at the 30-day sale price. You may need some up-front cash to do the deal if you’re not getting an excellent value on the land.


Would you invest $52,000 to make $125,000? Not bad, right? Just about a 240% return – and that’s if it takes you a full year. Hard money lenders can be a great source of leverage for construction projects.


Here’s an example.

Let’s say you pick up a lot in central Austin that’s over 7,000 square feet in a neighborhood that allows duplexes. You can build and convert a duplex into 2 condos to sell them separately. You want to use a hard money lender for construction funding.


Purchase price: $200,000

Construction budget: $420,000

Retail for (2) new condos: $900,000

Projected profit: $125,000

*after interest for 1 year, property tax, real estate commissions and 10% contingency on the construction budget

Max hard money loan: $630,000 or 70% of the retail value

Max funding released at closing: $175,000 or 70% of the current, as-is value

What would it take to do this deal with no cash? You’d need to buy it for $148,000. If you can do that, you could do this with no cash at closing.

You’d need some cash to close this example deal, but you could get most of it back during the construction phase. The maximum loan would escrow $455,000 for construction, $35,000 more than your $420,000 budget.

Closing costs to hard money lender: $25,200 (4) points to Little City Investments

Estimated costs allocated in the contract such as: doc prep ($650), title insurance, builders risk policy, survey, closing and recording fees: $2,650

Estimated cash needed at closing: $52,200 (but $35,000 can be reimbursed during construction phase)

Interest payments: $6,825/month

Using hard money for construction projects can be a challenge unless you have one of two things (1) a smoking deal – an acquisition price 30%+ below the current value, or (2) you have some cash to do the deal.

In this example, you’d be looking at using about $52,000 of your own cash (and $630,000 of ours) to make a profit of $125,000.

Doesn’t sound so bad when you put it like that, right? Let us know if you are a real estate investor in Austin or Houston seeking a hard money lender for a construction project.


4 thoughts on “Can I Use a Hard Money Lender for Construction?

  1. hello

    i want to get a loan for new construction. Im in the processes of getting a lot/ property under contract. Do i need to have some money for this type of loan. For example out of pocket money??

    1. Hi,
      Generally, you’ll at least need earnest and option money to open the contract with a title company. Whether or not you’ll need to bring cash to closing (or to get started on your construction) will depend on how good a deal you’re getting.

      This article about buying investment property without cash could be helpful.

      Good luck and let us know if we can help you with a hard money loan for new construction in Austin or Houston, Texas.

  2. I have been flipping houses since the late 80’s. I remember buying houses in Hyde Park for 20K and selling them for 150k back then:) We have flipped about 22 homes over the years since then. Took a break to finish raising our 5 kids and returned to do so only to find that Barney Franks really screwed things up for us independent businessmen! I’m a freelance photographer with credits for shooting for National Geographic Society, Life Magazine, Newsweek, Time, Sports Illustrated, many of the fortune 50 corporations and even spent some time as the Photography Editor at Texas Highways Magazine. Credit Score is great, along with my income. However, the banks tell me I’m too aggressive with my tax write off’s and suggest I pay more taxes than I owe so they can lend me the money for my projects. They even offered to throw in the added taxes I paid so I can pay them interest over 15 years for those taxes. LOL, talk about double taxation. I’ve read through this whole website and if this turns out to be true, I’m going to get on my knees and kiss everyones feet in your office:) Your company is an answer to the attacks being made on the core of this country. Even if I could get a loan from the “banks”, I would rather pay more and support your company. It’s simple and it makes sense…Thanks!

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