California's housing laws have opened up Modesto's older neighborhoods to new kinds of small projects. A lot that once held one house can now often hold a house and an accessory dwelling unit, or a duplex, which changes the math for investors who build to rent.
In short: LendingStreet finances ground-up construction of 1-8 unit investment property in Modesto and across Stanislaus County, including spec homes, build-to-rent houses, infill duplexes and fourplexes, house-plus-ADU projects and small 5-8 unit buildings. Loans are sized on loan-to-cost with terms set per project, and funds are released through a draw schedule after inspections. Plans, permits, a realistic budget and builder experience decide approval.
Larger builders work the subdivisions on Modesto's north and east edges and in Riverbank, Oakdale, Turlock, Ceres and Patterson, while smaller investors focus on infill: vacant or teardown lots in the College Area, the Airport District, south Modesto and the neighborhoods around downtown. State law now generally allows an accessory dwelling unit, and often a junior ADU, on single-family lots, and other state laws allow lot splits or two units on many single-family lots, subject to local standards.
For an investor, that means a single infill lot can support two rents instead of one, which helps a build-to-rent project clear the DSCR exit.
Demand for new rentals comes from families priced out of buying, Bay Area commuters, and workers at the hospitals, food processors and distribution centers across the county. Newer units with central air, garages and energy-efficient construction tend to lease quickly.
We size construction loans on loan-to-cost: a share of the total budget, including land, hard costs and soft costs such as plans, engineering, permits, impact fees, utility connections and builder fees. The finished value must support the exit, whether a sale or a DSCR refinance. Leverage, term and the interest reserve are set per project.
Funds are released in draws after inspections at stages such as foundation, framing, rough mechanicals, insulation and drywall, and final. Interest accrues only on drawn amounts. Our construction draw schedule calculator helps you map the stages.
California soft costs are higher than many investors expect. City and county development impact fees, school district fees charged per square foot, and water and sewer connection charges can add a large sum to a small project. New homes must meet the state energy code, which generally includes rooftop solar on new low-rise residential buildings, along with the CALGreen building standards.
This example is illustrative and not a quote. An investor buys an infill lot for $110,000 and builds a three-bedroom house with a detached ADU. Hard costs are $460,000 and soft costs, including impact and school fees, are $70,000, for a total of $640,000. For illustration, assume a loan at 80% of cost: $512,000.
Over a 12-month build with an average drawn balance of roughly 55% of the loan, estimated interest carry is about $29,568. When finished, the house rents for $2,800 and the ADU for $1,650, combined $4,450 a month, and the property appraises at $735,000. A DSCR refinance at 70% LTV gives a loan of $514,500, enough to retire the construction loan. Estimated principal and interest is about $3,554; with taxes of $675 on the new assessed value and insurance of $215, the payment is about $4,444 and the DSCR is about 1.00x, right at the standard minimum.
| Item | Amount |
|---|---|
| Lot | $110,000 |
| Hard costs | $460,000 |
| Soft costs incl. fees | $70,000 |
| Total project cost | $640,000 |
| Construction loan (80% of cost, illustrative) | $512,000 |
| Estimated interest carry | $29,568 |
| Combined rent when finished | $4,450 |
| Appraised value | $735,000 |
| DSCR refinance at 70% LTV | $514,500 |
| DSCR | About 1.00x |
Run the same example with only the house and the rent drops to $2,800 while most of the costs stay. On a Modesto build-to-rent project, the ADU or second unit is often the difference between a refinance that works and one that needs extra cash. If the numbers are tight, a spec sale exit may be the better plan.
New construction is assessed at its completed value under Prop 13, so use taxes on the finished value, not the land-only bill you paid during construction.
Inside the city, plans go through Modesto's planning and building divisions; unincorporated areas such as Salida and Empire are handled by Stanislaus County, and Ceres, Riverbank, Turlock and Oakdale each have their own departments. Confirm zoning, setbacks, ADU and lot-split standards, utility availability and any design review before closing on the lot.
Projects without plans or permits, or a borrower with no build track record and no experienced general contractor, usually do not qualify. Bring your contractor's license and recent completed projects.
Summers in Modesto are long and hot, so efficient HVAC, insulation and shading matter to tenants and buyers. Lots in flood-prone areas near the Tuolumne River or Dry Creek may need elevation or flood insurance. Plan for these items in the budget and design rather than adding them later.
Electric service in much of the Modesto area comes from the Modesto Irrigation District rather than PG&E, and Turlock is served by the Turlock Irrigation District. Check with the right utility early about service capacity, connection timing and costs, since a delayed meter set can hold up your final inspection.
These documents help us review a Modesto construction project quickly.
Our investor loans are business-purpose loans on non-owner-occupied property. Send your project through the form below or call (877) 298-1001. For statewide context, see our California construction loans page.
Yes, as part of ground-up 1-8 unit investment property, such as a new house with a detached ADU built to rent.
Often, under state law and local standards, but confirm with the city or county. Zoning and approvals must be in place before we fund.
They are soft costs and belong in the total project cost, which is how we size the loan.
Through a draw schedule; each stage is inspected before its funds are released, and interest accrues only on drawn amounts.
California's energy code generally requires solar on new low-rise residential buildings. Include it in your budget.
Yes. New construction is assessed at its completed value, so use that figure in your DSCR math.
Experience matters. Borrowers without a track record usually need an experienced licensed general contractor, and projects need plans and permits.
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