Leverage is one of the first things investors ask about, and build to rent loan-to-cost depends on the path you choose. The structure of your loan changes how much of the project you can finance. This entry explains the two main paths, the loan-to-cost each one reaches, and how construction costs factor into the total.
What Build to Rent Loan-to-Cost Measures #
Loan-to-cost compares the loan amount to the total cost of the project. Specifically, it measures how much of the combined land and construction budget the lender will finance. As a result, it tells you how much capital you need to bring yourself.
A higher loan-to-cost means more leverage and less cash to close. Therefore, the path you choose has a direct effect on your out-of-pocket requirement.
The One-Time Close Path #
One path is the one-time close loan, which combines construction and permanent financing in a single transaction. On this path, build to rent financing reaches up to 87.5 percent loan-to-cost.
Because everything closes at once, the structure is efficient and avoids a second closing. Consequently, the borrower moves from construction into the rental phase without starting a new loan.
The Standalone Construction Path #
The other path is a standalone construction loan, where the borrower later refinances into a separate rental loan. On this path, financing reaches up to 95 percent loan-to-cost.
This higher leverage applies because the construction loan stands on its own. Afterward, the borrower refinances into a long-term DSCR loan once the property is complete and stabilized. Therefore, the exit is a separate transaction rather than an automatic conversion.
How Construction Costs Factor In #
On both paths, the loan can fund up to 100 percent of construction costs. Specifically, the loan-to-cost figure applies to the total project, while draws can cover the construction budget in full.
As a result, the two paths differ mainly in overall leverage and in whether the loan builds in permanent financing or leaves it separate.
Common Misunderstandings About LTC #
Investors sometimes assume the following:
- A single loan-to-cost figure applies to every build to rent loan
- The one-time close path always offers the highest leverage
- Construction costs and total project cost are the same thing
- The standalone path converts automatically without a refinance
Understanding the two paths helps you choose the structure that fits your plan.
Summary #
Build to rent loan-to-cost depends on the path you choose. A one-time close loan reaches up to 87.5 percent loan-to-cost and combines construction and permanent financing in one transaction. A standalone construction loan reaches up to 95 percent loan-to-cost, with the borrower refinancing into a separate DSCR loan later. On both paths, draws can fund up to 100 percent of construction costs. When you understand how each path works, you can choose the structure that matches your leverage and your exit plan.