Buy the land, build rentals, refinance into long-term debt and keep the properties: it is a sound plan and a common one. The question is which loan does which step. Investors often ask for a bridge loan because it is fast and flexible, but a bridge loan and a construction loan are built for different jobs, and land sits awkwardly between them.
Why a bridge loan on land alone is limited
A bridge loan is sized against the current value of an existing property and repaid by a sale or a refinance. Vacant land produces no income and has a narrower resale market than a finished home, so lenders advance much less against it, when they lend on it at all. A land-only bridge also leaves the construction money unsolved.
The structure that usually works
- Acquire the land: with cash, or with a construction loan that includes the land purchase if plans and permits are close to ready
- If you must close on the land before the project is ready to build, a short bridge on the land is possible, sized conservatively, with the construction loan as its exit
- Build with a ground-up construction loan: up to 85% LTC with Passy Capital, the land counting toward your equity or cost, the build budget released in draws after inspections
- Finish and lease: certificates of occupancy, signed leases, a rent roll
- Refinance into a DSCR loan up to 80% LTV, qualified on the rents, which pays off the construction loan
The three stages at a glance
- Land bridge (optional): sized on the land alone, short term, exit is the construction loan
- Construction loan: sized on total project cost, interest on drawn funds only, exit is the DSCR refinance or a sale
- DSCR loan: sized on the finished value and on the rent covering the payment, long term, no exit needed
Sizing the DSCR exit before you buy the land
The refinance has to repay the construction loan. Two tests decide how large it can be: the loan-to-value on the appraised, finished property, and the debt service coverage ratio, the rent against the new loan payment. If the rents comparable new homes achieve only cover a smaller loan, you bring cash at the refinance.
Run that test at the land stage with realistic rents and values for the finished homes. If the numbers only work with optimistic rents, change the plan before you are committed to the land.
Timing and seasoning
Most DSCR lenders want the property complete and leased, and some want a short operating history before they lend on the full appraised value rather than on cost. Ask about seasoning when you take the construction loan, and set its term to leave room for the build, lease-up and the refinance itself.
US and foreign investors
The same structure applies to both. A non-US investor borrows through a US LLC, with no US credit history required, and the DSCR loan qualifies on the property's rent rather than on US income. Passy Capital finances each stage from $1M to $5M, with term sheets in 24 to 48 hours.