Waco sits on the edge of the Blackland Prairie, and its expansive clay soils are the first thing an experienced builder prices. Get the foundation right, and the market's steady growth along I-35 and demand near Baylor support new rentals.
In short: LendingStreet lends on new 1-8 unit investor construction in and around Waco. Loans are sized on loan-to-cost, terms are set project by project, and money is released through a draw schedule after inspections. Typical projects include duplexes and fourplexes near Baylor University, build-to-rent homes in Robinson and Lorena, and spec homes in Hewitt, Woodway and China Spring. Our investor loans are business-purpose loans on non-owner-occupied property.
Around Baylor University, student and staff demand supports duplexes and small multi-unit buildings, and infill lots in Sanger Heights, Castle Heights and parts of East Waco near Elm Avenue can take new homes. North Waco and areas near downtown have more vacant lots at lower prices.
South along I-35, Hewitt, Woodway and Robinson have newer subdivisions and strong schools, and Lorena and McGregor add room to grow. China Spring to the northwest draws buyers for its schools and larger lots.
| Project type | Where it tends to fit | Local issues to check |
|---|---|---|
| Duplexes and fourplexes | Near Baylor, Sanger Heights | Parking, zoning, student lease cycle |
| Build-to-rent houses | Robinson, Lorena, Bellmead | Platting, foundation design |
| Spec homes | Hewitt, Woodway, China Spring | Resale comparables, HOA rules |
The City of Waco and the suburbs each issue building permits and enforce zoning inside their limits, and many have extraterritorial jurisdictions where city subdivision standards apply. Texas counties have little zoning power, so in unincorporated McLennan County the main questions are platting, septic permits and road access.
Waco also requires permits for short-term rentals. If you plan to build for nightly use near the Magnolia and downtown area, confirm the current rules before you count on that income.
Expansive Blackland clay swells when wet and shrinks when dry, which can crack slabs that are not designed for it. Engineered post-tension slabs or other designed foundations are standard, along with good drainage. Hail and severe spring storms make roofing choices matter for insurance.
Construction loans are based on loan-to-cost (LTC). Add the land, the hard construction budget and the soft costs such as plans, permits and fees, and the loan is a share of that total, with terms set per project.
Three things move the number: a detailed, line-item budget; a builder or general contractor with a track record on similar homes; and an after-completion value that leaves a cushion over total cost.
This example is illustrative and not a quote. An investor builds a duplex on an infill lot near Baylor University. Land costs $45,000, the hard-cost budget is $320,000 and soft costs such as plans, permits, fees and builder's risk insurance are $30,000, for a total project cost of $395,000. If the project is sized at 80% of total cost, the construction loan is $316,000 and the investor brings $79,000 in cash or land equity.
At completion the property appraises at $450,000 and leases as two 2-bedroom units at $1,550 each, for $3,100 a month. Because Texas property taxes on a duplex are high, the investor plans the DSCR refinance at 65% LTV instead of the 75% maximum. That loan is $292,500, so the investor pays down about $23,500 of the $316,000 construction loan with cash and leaves more equity in the property. Estimated principal and interest on a 30-year loan is about $1,995; with taxes of $780 and insurance of $200 a month, the payment is about $2,975 and the DSCR is about 1.04x.
That clears the 1.0x standard minimum. Interest during construction and closing costs are not shown, and your numbers will differ.
| Item | Amount |
|---|---|
| Land | $45,000 |
| Hard costs | $320,000 |
| Soft costs | $30,000 |
| Total project cost | $395,000 |
| Construction loan at 80% LTC | $316,000 |
| Completed value | $450,000 |
| DSCR refinance at 65% LTV | $292,500 |
| Estimated principal and interest | $1,995 |
| Taxes and insurance | $980 |
| Monthly rent | $3,100 |
| DSCR | About 1.04x |
Funds for land are typically advanced at closing, and construction money is released in draws as work is completed. Before each draw, an inspector confirms progress against the budget, such as foundation, framing, dry-in, mechanicals and finishes. Interest is generally charged on funds drawn, not on the full commitment.
Build a draw schedule before you close so you know how much cash you need between draws. Our construction draw schedule calculator can help you map it out.
Texas funds local services through property taxes, and a Waco home is taxed by the county, city, school district and sometimes other districts. The McLennan Central Appraisal District values improvements as of January 1, so a home finished mid-year may show a partial value at first. Rentals get no homestead exemption, so budget on the full combined rate and completed value.
Texas has no state transfer tax or mortgage recording tax, which helps closing costs on the land and the DSCR refinance.
These items let us size the loan and set the draw schedule. Without plans, permits or an experienced builder on the team, a project is usually not ready for a construction loan.
Our construction loans are business-purpose loans on non-owner-occupied 1-8 unit projects in McLennan County, including Hewitt, Woodway, Robinson, Lorena and China Spring. Tell us about the project, including land, plans, budget, builder and exit, and the team will review it and outline terms. You can also read our Texas construction loans page. Get a quote with the form below or call (877) 298-1001.
Expansive clay soils move with moisture. An engineered post-tension slab and good drainage protect the home, and they belong in the budget from the start.
Yes. Duplexes, fourplexes and small 5-8 unit buildings near campus fit our ground-up program with plans, permits and an experienced builder.
Loan-to-cost (LTC) is the loan amount divided by total project cost, including land, hard costs and soft costs. Construction loans are sized on LTC, with terms set per project.
Yes. Exits are by sale or refinance. Spec builders usually sell, while build-to-rent investors usually refinance into a DSCR loan.
Waco requires short-term rental permits. Confirm current rules before planning an exit around nightly income.
Improvements are valued as of January 1, so a home finished mid-year may be partially valued. Underwrite the full value going forward.
Plans and permits, or a clear path to them, are expected. Projects without plans or permits usually do not qualify.
Terms are set per project, based on the size of the build and the schedule. Short-term, interest-only financing during the build is typical, followed by a sale or a DSCR refinance.
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