How to Structure a Ground-Up Investment Deal

Building real estate from the ground up isn’t just for developers with deep pockets. With the right strategy, financing, and deal structure, even small to mid-size investors can take on ground-up construction projects—and come out with major returns.

Whether you’re building a single-family rental, a small multifamily, or a vacation STR, success starts with a smart deal structure that covers land, capital, construction, and your exit.

This guide breaks down exactly how to structure a ground-up investment deal—from funding the land to final disposition—so you can reduce risk and increase your upside.

Why Ground-Up Construction?

Ground-up development gives you:

• Full control over the design and layout
  
• Potentially higher margins than rehabs
  
• New, low-maintenance buildings = higher rents & fewer repairs
  
• Ability to build where inventory is limited or overpriced
  
• A scalable strategy when existing deals are scarce
  

The catch? It requires precise planning and disciplined structure—especially if you’re using leverage or investor capital.

Key Components of a Ground-Up Investment Deal

✅ 1. Land Acquisition

This is your foundation—literally. Your land cost affects everything downstream.

• Target price: 10–20% of ARV
  
• Perform due diligence: zoning, utilities, setbacks, soil
  
• Use an LOI or purchase agreement with a feasibility period
  
• Consider land seller financing to reduce upfront capital
  

✅ 2. Capital Stack

How will the deal be funded?

Smart investors layer their capital to maximize leverage and protect their own contributions.

✅ 3. Entity Structure

You’ll typically use a single-purpose LLC for liability protection and capital management.

• Set up an operating agreement outlining:
  
  • Capital contributions
    
  • Decision-making roles
    
  • Profit splits (e.g., 70/30 or 80/20)
    
  • Exit strategy and preferred returns
    

If using partners, clearly define who brings the money, the credit, and the sweat equity.

✅ 4. Construction Budget and Timeline

Use a line-item budget and tie it to a draw schedule with your lender.

• Include contingency (10–15%)
  
• Account for soft costs (permits, engineering, fees)
  
• Work only with licensed, insured GCs
  
• Time equals money: every delay = lost ROI
  

Pro Tip:

Vet your contractor’s track record with investor-friendly builds—especially for rental-grade or STR-quality finishes.

✅ 5. Financing the Project

Most ground-up deals are funded with construction loans, which are interest-only and released in draws.

Make sure you have a defined exit strategy before closing on the land or loan.

Exit Strategy Options

Your deal structure should always be reverse-engineered from your exit:

🔄 Refinance and Rent (BRRRR Build)

• Ideal for single-family rentals or small multifamily
  
• Use a DSCR loan post-build to hold long-term
  
• Build equity while locking in cash flow
  

💰 Sell at Completion (Spec Build)

• Works well in hot markets
  
• Maximize profit upfront, avoid management
  
• Watch for comps and seasonal trends before listing
  

🤝 Joint Venture Buyout

• Partner buys you out post-construction
  
• Clean exit for capital investors or builders
  

Real-World Deal Structure Example

Project: Build a 3-bed, 2-bath SFR in a suburban infill lot

• Land cost: $40,000
  
• Build cost: $260,000
  
• ARV: $430,000
  
• Financing: 85% construction loan ($255K), $45K equity
  
• Structure: 80/20 split with investor putting up cash
  
• Timeline: 8 months build + 2 months refi
  
• Exit: DSCR refinance at 75% LTV = $322,500
  
• Outcome: Investor repaid, partner cashes out $60K+, holds for rent
  

Tips for Structuring a Ground-Up Deal

• Start with the end in mind: Know your exit before you break ground
  
• Pad your numbers: Assume 10% over budget and 2–3 month delays
  
• Use an LLC and formal agreement—no handshake deals
  
• Line up financing and contractors before you close
  
• Use third-party inspections for draw releases and accountability
  

Final Thoughts

Ground-up real estate investing can feel complex—but when structured properly, it’s one of the most powerful ways to build equity, generate cash flow, and create long-term wealth.

It all comes down to:

• The right land
  
• A smart capital stack
  
• A trustworthy team
  
• And a clearly defined exit strategy
  

If you want full control over your next deal—and the profits that come with it—learning to structure ground-up projects is a skill worth mastering.