Spec homes and build-to-rent projects in Texas are often built by investors and small builders rather than by large homebuilders. A foreign investor can take part on the same footing: the construction loan is a business-purpose loan to a US LLC, underwritten on the project, not on a US credit file or US income.
How a construction loan works for a foreign investor
- Borrower: a US LLC with its EIN and a funded US bank account; no US credit score or Social Security number required
- Leverage: up to 85% of total project cost, including the land, hard costs and soft costs
- Draws: the land portion funds at closing; construction funds are released after an inspector confirms each stage
- Interest: paid on the drawn balance only
- Exit: a sale of the finished homes, or a DSCR refinance up to 80% LTV if you keep them as rentals
- Speed: term sheet in 24 to 48 hours; about two weeks to close on a clean file
What the lender needs
Experience gained outside the US counts if it can be documented. A first US project with an experienced local contractor is a common and fundable structure.
- The lot, owned or under contract, with zoning or deed restrictions that allow the planned homes
- Plans, specifications, and permits or a clear path to them
- A line-item budget with a contingency, which becomes the draw schedule
- A builder: your own documented track record or a contract with an experienced general contractor
- An as-completed value supported by recent sales or rents of comparable new homes
- Identity and source-of-funds documents for each owner of the LLC
Texas rules that affect a construction project
- Retainage: under Texas Property Code section 53.101, the owner must reserve 10% of the contract price (or of the value of the work done) during the work and for 30 days after it is completed, for the benefit of unpaid subcontractors and suppliers. Budget and draw schedules should reflect it
- Mechanic's liens: contractors and suppliers who are not paid can file liens on the property, which is why lenders release draws against lien waivers
- Foreclosure: Texas loans are typically secured by a deed of trust and foreclosed outside the courts, at a public sale held on the first Tuesday of a month after statutory notice
- Taxes: Texas has no state personal income tax, but an LLC doing business in Texas is subject to the Texas franchise tax and its annual reports, whatever its formation state
- Permits: building permits and inspections are handled by the city, or by the county outside city limits, and timelines differ widely between jurisdictions
Selling the finished homes: FIRPTA
When a single-member LLC owned by a foreign person sells a spec home, the IRS treats the foreign owner as the seller and the buyer generally withholds 15% of the sale price. The construction loan is repaid first from the proceeds; the withholding reduces the cash you take to the next project until your US tax return or an IRS withholding certificate settles it. Partnership and corporate LLCs follow different rules, so set the structure with a US tax adviser before you buy the land.
Build to sell or build to rent
If you plan to keep the homes, the construction loan can be refinanced into a DSCR loan once they are leased. The DSCR loan qualifies on the rent against the payment, which suits a foreign investor whose income is not documented in the US. Plan that exit before you start: the rents and values at completion decide how much of the construction loan the refinance can repay.