Los Angeles investors build new single-family homes for sale, and the question they ask lenders is the leverage. The headline answer is 85% of total cost. The practical answer depends on two things the headline does not show: whether permits are issued, and how far the finished value sits above cost.
The two tests on every spec build
The loan is the lower of the two. A spec build where the expected sale price barely clears the budget is a thin deal whatever the LTC headline says, and the lender will size it accordingly. The same logic on renovations is worked through in LTC vs ARV.
| Test | What it measures | When it sets the loan |
|---|---|---|
| Cost test | Up to 85% of land, hard costs, soft costs and contingency | When the finished value is well above cost |
| Value test | The loan against the appraiser's as-completed value | When value is close to cost, which is common at California prices |
Before permits: a bridge, not a construction loan
A construction loan funds once permits are in hand. Before that, a bridge loan can carry the lot through entitlement at lower leverage and convert to construction when the permits are issued. A California spec build is an entitlement project with a house at the end of it: the vertical cost is the predictable part, while the timeline depends on the jurisdiction, design review and any hillside, coastal or historic overlay. The term is written to the realistic schedule.
California rules that reach the numbers
| Rule | Effect on a spec build |
|---|---|
| Proposition 13 | Property is reassessed to market value when new construction is completed, then annual increases are capped at 2%; carry the reassessed tax if the sale takes time |
| Measure ULA (City of Los Angeles) | A transfer tax on sales above a threshold adjusted each year, currently about $5.4 million; check it against your exit price |
| Non-judicial foreclosure | Loans are secured by a deed of trust and foreclosed by trustee's sale under Civil Code section 2924 and following |
The context
California permitted 57,739 single-family units in 2025, fourth among states, and the typical California flip returned 10.5% gross in Q2 2026 against 21.5% nationally (Census and ATTOM, on our 2026 financing data page). Margins are thinner than the prices suggest, which is why the value test matters here more than in most markets.
The exit
A Los Angeles spec build is usually repaid from a sale. A hold is possible where the rent supports a DSCR refinance at up to 80% LTV, which at California prices is the exception rather than the rule, so the file should be built on the sale. Interest runs on the drawn balance, typically at 9% to 12% a year, so every month the sale takes beyond the plan adds carry.
A builder based outside the US should also plan for FIRPTA: when a foreign-owned single-member LLC sells, the buyer generally withholds 15% of the price, which reduces the cash available for the next project until it is settled with the IRS.
What to send
A term sheet comes back in 24 to 48 hours. The program is on California spec build construction loans; the equity arithmetic at 85% is in how much equity a $1.5M construction loan needs. Non-US builders borrow on the same terms through a US LLC.
- The lot, its overlays and permit status
- Plans and a line-item budget with contingency
- The general contractor's contract, licence and record of similar builds
- Recent sales of comparable new construction nearby
- Your equity and the liquidity to carry the project to a sale