Loan Programs · 7 min read

Ground Up Construction Loans: What Investors Need to Know

January 3, 2026

Ground up construction is one of the most rewarding — and complex — real estate investment strategies. Building a new property from scratch offers the highest potential returns, but it also requires specialized financing that most traditional lenders won't provide.

How Construction Loans Differ

Unlike a standard mortgage where you receive the full loan amount at closing, construction loans are disbursed in stages as the building progresses. You typically close on the land purchase first, then receive draws as construction milestones are completed — foundation, framing, mechanical systems, and finishing.

What Lenders Look For

Construction lending is relationship-driven. Lenders want to see an experienced builder, detailed plans and permits, a realistic budget and timeline, and a clear exit strategy (sell or refinance upon completion). Your builder's track record matters enormously — most lenders require your general contractor to have completed similar projects successfully.

The Numbers

Private construction loans typically cover 85-90% of the total project cost (land + construction). Interest rates range from 10-13%, and terms are usually 12-24 months. Most lenders require the borrower to have some "skin in the game" — usually 10-15% of the total project cost in cash equity.

Managing the Build Process

Successful construction projects come down to three things: planning, communication, and contingency. Build a detailed scope of work before you break ground. Maintain regular communication with your builder, lender, and any partners. And always budget a 10-15% contingency for unexpected costs — because there are always unexpected costs.

Common Pitfalls to Avoid

The biggest mistakes in ground up construction are underestimating the timeline, not having enough reserves for cost overruns, choosing the cheapest contractor instead of the most reliable one, and not having a clear exit strategy before you start. Avoid these, and you'll set yourself up for a profitable build.

Ready to Build?

If you have a construction project in mind, Lulu Capital can help you structure the financing to make it happen. We work with experienced builders and investors to fund ground up projects across the country.