A 2-4 unit building is the step up from a single spec home: more rent or more sale value from one lot, one foundation and one roof. The financing is a ground-up construction loan, structured the same way as for a single house, but the lender looks harder at zoning, the unit mix and the exit, because the buyer pool and the rental math are different.
Terms at a glance
| Term | Passy Capital |
|---|---|
| Loan size | $1M to $5M |
| Leverage | Up to 85% of total cost (LTC) |
| Term | 12 to 24 months |
| Interest | Typically 8% to 12%, interest-only on the drawn balance |
| Land | Land with entitlements financed at reduced leverage as part of the build |
| Fee | 1% to 2% of the loan at closing, no upfront fees |
| Borrower | A US LLC, for US and foreign investors on the same terms |
How the money moves
The draw schedule entry covers inspections, retainage and timing in detail.
- At closing, the loan funds its share of the land (or credits the land you own toward your equity) and closing costs
- You put in your equity first; on a project at the maximum that is 15% of total cost
- The builder completes a stage: foundation, framing, dry-in, mechanicals, finishes
- An inspector confirms the stage, and the lender releases that stage's funds
- Interest accrues only on what has been drawn, so payments grow as the building does
- At completion, the units are sold or let, and the loan is repaid by the sale or by a DSCR refinance
What is specific to 2-4 units
- Zoning: the lot must allow the number of units you plan. Many single-family zones do not, and a rezoning is not something a construction loan waits for
- Exit by sale: can the building be sold as a whole, or can the units be sold separately as condominiums or townhomes? The answer changes the appraisal
- Exit by refinance: a DSCR loan up to 80% LTV is sized on the combined rents, so market rents per unit have to be supported
- Utilities and fire separation: separate meters and code requirements between units add cost that belongs in the budget
- Builder: a licensed general contractor who has built multi-unit residential, not only single-family homes
What the lender needs
See construction loans for the product and what a lender needs for a spec build for how a lender reads a builder's file. A construction loan calculator gives a first view of the interest carry.
- Site control and zoning confirmation
- Plans, specifications and permits, or a realistic permit timeline
- A line-item budget with a contingency, and the general contractor's contract
- Your track record, or the builder's, on similar projects
- The exit: comparable sales or rents for new 2-4 unit buildings nearby
- Proof of equity and reserves to cover overruns and carry
A worked example
A lot bought for $400,000 and a fourplex budgeted at $1,600,000 make a total cost of $2,000,000. At 85% LTC the loan can reach $1,700,000, and your equity is $300,000, often largely covered by the land if you already own it. The building budget is released in draws over the build. At completion, a sale repays the loan, or a DSCR refinance up to 80% of the appraised value of the let building does.
The arithmetic is at the published maximum; the actual loan depends on the appraisal, the plans and your experience.