New construction in the Buffalo area splits into two worlds. In the northern and southern suburbs, builders put up spec homes for buyers who want something newer than the region's century-old stock. In the city, infill on vacant lots is growing, but the numbers have to be checked carefully, because new buildings do not always appraise above their cost.
In short: LendingStreet finances ground-up construction of 1-8 unit investment properties across the Buffalo-Niagara region, including spec homes, build-to-rent houses, infill doubles and fourplexes and small 5-8 unit buildings. Loans are sized on loan-to-cost (LTC), terms are set per project and funds are released through a draw schedule after inspections. Plans, permits, a realistic budget and builder experience decide the file.
Most spec building in the metro is in towns with open land and strong demand: Amherst, Clarence, Lancaster, Orchard Park, Hamburg, Grand Island, East Aurora and parts of West Seneca and Wheatfield. Buyers there are often families moving up from older homes in the inner suburbs or relocating for jobs at the medical campus, the universities and regional employers.
In the city, infill is happening on vacant lots on the East Side, the West Side, Black Rock and parts of South Buffalo, as well as in Allentown and around the medical campus where land is pricier. New doubles and small rental buildings are the most common infill types.
Buffalo adopted a form-based zoning ordinance known as the Green Code, which sets what can be built on each lot based on the character of the street, along with rules on building placement, height, parking and design. Check the lot's zone and whether the building you have in mind is allowed by right or needs a variance or special approval.
Each suburb has its own zoning and planning board, and subdivision approvals, drainage and utility connections can take time. We generally need approved plans and issued permits, or a clear path to them, before funding construction. Projects without plans or permits usually do not qualify.
This example is illustrative and not a quote. A builder buys a lot in Clarence for $110,000 and plans a new single-family home. Hard costs are $440,000 and soft costs $50,000, for a total cost of $600,000. For this example, assume the loan is sized at 80% of total cost, or $480,000, with $120,000 of builder equity.
Interest is paid only on the money drawn. Over a 9-month build with an average balance of about $264,000, estimated interest is about $20,790. The home sells for $745,000, and after about $40,975 in selling costs the estimated profit is about $83,235 before income taxes.
| Item | Amount |
|---|---|
| Land | $110,000 |
| Hard costs | $440,000 |
| Soft costs | $50,000 |
| Total project cost | $600,000 |
| Construction loan at 80% of cost | $480,000 |
| Builder equity | $120,000 |
| Estimated interest, 9 months | $20,790 |
| Sale price | $745,000 |
| Selling costs | $40,975 |
| Estimated profit | $83,235 |
In some Buffalo neighborhoods, a newly built double can cost more to build than nearby renovated doubles sell for. Appraisers value a new building against comparable sales and rents, so if those comps are older homes at lower prices, the finished value may not support the full project cost. That is not a reason to avoid city infill, but it is a reason to run the numbers carefully.
Projects work best where rents and sales are strong, such as around the medical campus, Allentown, Elmwood and parts of the West Side, or where land is cheap enough to keep total cost in line with finished value. If you plan to rent and refinance, check that the rent on the finished units covers a DSCR payment at 1.0x or better.
Western New York winters are long, and lake-effect snow can stop work for days. Foundations should be poured before the ground freezes, and frost depth in the region calls for deeper footings than in warmer climates. A project that starts in October may not get under roof before winter, which adds months of interest and insurance.
Many builders here plan starts for spring, aim to have the house closed in by fall and finish interiors through the winter. Build schedule slack into your budget.
Winter work also costs more. Temporary heat, snow removal on the site and protecting materials from the weather all add to the budget, so include them if the schedule runs through the cold months.
Funds are released in stages after inspections confirm completed work. A typical sequence runs from site work and foundation through framing and roof, rough mechanicals, insulation and drywall, finishes and the certificate of occupancy.
| Stage | What is inspected |
|---|---|
| Site work and foundation | Footings, foundation walls, drainage |
| Framing and roof | Structure closed in against weather |
| Rough mechanicals | Plumbing, electrical and HVAC before walls close |
| Insulation and drywall | Energy code compliance and wallboard |
| Finishes | Kitchens, baths, flooring, trim |
| Final | Certificate of occupancy |
Builders with completed projects, and investors working with an experienced licensed general contractor, are in the strongest position. A borrower with no build track record and no experienced general contractor usually does not qualify. We review plans, permits, budget, schedule, contractor credentials and the exit plan.
Suburban spec homes usually sell to owner-occupants. Build-to-rent houses and city infill can be refinanced into 30-year DSCR loans once leased, paying off the construction loan. New York's mortgage recording tax generally applies to the new mortgage, so include it in your refinance costs.
Build-to-rent is gaining ground in the suburbs, where tenants who cannot find or afford a newer home to buy will pay for a new rental with modern systems and lower utility bills. If you plan to hold, check the full tax bill on the new home, since a new assessment in towns like Amherst or Orchard Park can be a large part of the DSCR payment.
Send the lot address, plans, approvals, budget and schedule through the form below, or call (877) 298-1001. You can map the stages in advance with our construction draw schedule calculator.
Residential investment property from one to eight units: spec homes, build-to-rent houses, infill doubles, fourplexes and small 5-8 unit buildings.
On loan-to-cost, covering land, hard costs and soft costs, and checked against the finished value. Terms are set per project.
Buffalo's zoning ordinance. It sets what can be built on each lot, including building placement, height and use.
We generally need approved plans and permits, or a clear path to them.
Interior work can continue, but foundations and framing are best done before the ground freezes and the snow arrives.
Appraisers use nearby sales and rents. If those are older homes at lower prices, the finished value may not cover the full cost.
Through draws after each stage is inspected.
Only with an experienced general contractor and a complete plan.
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