In the world of real estate investing, few strategies offer the scale of potential returns that ground-up construction can. While the risks and capital requirements are higher than your typical flip, the payoff can be exponentially greater—especially when you pair a strong business plan with the right financing.
Let’s break down a real example of how a Seattle-based builder turned a run-down property into a $1.2 million equity gain using a smart development strategy—and how he financed it with a new construction loan.
From Beater to Boutique Townhomes: The Project
This particular builder found an old, dilapidated single-family home on a large lot in Seattle and saw potential that most people would miss. He acquired the property for $1,000,000, knowing it wasn’t about the house—it was about the land and the zoning potential.
Once permits were secured, the builder demolished the existing structure and replaced it with seven modern townhomes: four in the front and three in the back. Each unit was 900 square feet, with 2 bedrooms and 2.5 bathrooms, designed with smart floor plans and modern finishes ideal for young professionals and small families in Seattle’s hot urban neighborhoods.
The Numbers
Here’s how the economics of this deal shook out:
- Purchase Price (Land): $1,000,000
- Construction + Holding Costs: $2,300,000
- Total Investment: $3,300,000
- Completed Value (ARV): $4,500,000
- Equity Created: $1,200,000
That’s a 36% return on total costs—and significantly more if you consider the builder’s actual out-of-pocket cash was less than the full $3.3 million.
So, how did he finance it?
The Power of a Ground-Up Construction Loan
Most investors don't have millions of dollars sitting in the bank—and even if they do, using leverage to stretch your capital across multiple deals is often the smarter path to scaling. That's where new construction loans come in.
At Certain Lending, we helped this investor finance the deal with a construction loan specifically tailored to this kind of development.
How Construction Loans Work
A ground-up construction loan is a type of short-term financing that covers:
- Land acquisition (if included)
- Soft costs like architectural design and permitting
- Hard costs like labor and materials
- Interest reserves and contingency buffers
The loan is funded in draws as the project progresses. Investors only pay interest on what they’ve drawn, not the full loan amount upfront. It’s a smart way to manage cash flow and reduce carrying costs while a project is being built.
How Much Do You Need to Bring to the Table?
This depends on your experience level, the quality of your plan, and the lender you’re working with. In general:
- Lenders will cover 75–85% of total project costs
- Investors must contribute 15–25% of total project costs in cash
In this Seattle example, the total project costs were $3.3 million. So if the investor had to contribute 25%, they would need to bring $825,000 to the table.
However, an experienced developer with a strong track record could secure up to 85% financing, reducing the upfront capital needed to $495,000. That's a big difference—and a huge reason why experience pays off in new construction.
But What About the Land as Collateral?
This is a question we get a lot.
When a builder already owns a lot and is seeking financing to build on it, the land can often be used as collateral toward their equity contribution—especially if it's owned free and clear.
However, in purchase scenarios (like this Seattle case), most lenders require the investor to contribute cash equity rather than relying on the land value as collateral. That’s because the loan is based on the total project costs, and lenders want to ensure the borrower has skin in the game upfront.
In contrast, for refinances or ADU (Accessory Dwelling Unit) plays where the back lot is being developed on an already-owned property, there may be more flexibility in how equity is calculated.
Is Ground-Up Construction Right for You?
Here are some questions to ask yourself if you’re thinking about diving into new construction:
- Do you have experience managing contractors, permits, and timelines?
If not, do you have a trusted partner who does? - Do you own land or have identified a parcel that’s build-ready or zoned for multi-family?
- Are you comfortable navigating a longer project timeline?
New construction projects typically take 12–24 months from start to finish. - Do you have 15–25% of total costs available in cash or equity?
- Are you working with a lender who understands construction and can be a true partner—not just a bank?
If you answered “yes” to most of the above, then you may be ready to explore new construction—and we’d love to help.
How Certain Lending Supports Ground-Up Builders
At Certain Lending, we specialize in lending to experienced and emerging real estate investors who are ready to take their business to the next level. For new construction projects, we provide:
✅ Financing up to 85% of total project costs
✅ Fast, transparent approvals and draws
✅ Flexible underwriting based on experience
✅ Access to real humans who understand your market and your goals
We know how much work goes into getting a project entitled, designed, and built. That’s why we don’t just provide funding—we provide guidance, too.
Check out the full story in Israel Lopez’s Instagram story below:
