Building or renovating real estate from the ground up can be a powerful investment strategy—but it requires more than just a good contractor and a blueprint. You need the right financing.
That’s where construction loans come in.
Whether you’re developing a single-family rental, adding ADUs, or taking on a fix-to-rent project, a construction loan can help cover the upfront costs of labor and materials—while preserving your cash flow.
In this beginner’s guide, we’ll break down how construction loans work, the different types available, what they cover, and how to qualify as a real estate investor.
What Is a Construction Loan?
A construction loan is a short-term, interest-only loan that funds the cost of building or substantially renovating a property. Unlike traditional mortgages, construction loans are released in draws as the project progresses.
They’re used for:
- Ground-up construction
- Major structural rehabs
- Tear-down and rebuild projects
- In some cases, modular or manufactured housing setups
Once construction is complete, the loan is typically converted into a permanent mortgage or paid off with a refinance or sale.
