Land Loan vs. Construction Loan: What Comes First?
Terrydale Capital
Jan 14, 2026 6 Min read
For investors developing Build-to-Rent (BTR) communities, one of the most common questions is whether to secure a land loan or a construction loan first. The answer depends on timing, entitlements, lender requirements, and overall project strategy.
In high-growth Texas markets such as Dallas, McKinney, Prosper, and the greater DFW area, understanding how these two financing stages work together can save investors time, money, and unnecessary refinancing costs.
This guide explains how land loans and construction loans fit into the BTR development timeline and which one typically comes first.
Understanding the Role of a Land Loan
A land loan is used to acquire raw or improved land before construction begins. Since land does not generate income, lenders view these loans as higher risk.
Land loans are commonly used when:
- Zoning or entitlements are still pending
- Site planning is underway
- Utilities or infrastructure need development
- Construction timelines are not yet finalized
Lenders offering how to get a loan for land solutions typically require higher down payments and shorter terms.
When a Land Loan Comes First
In most BTR projects, the land loan comes first. This is especially true when the land is undeveloped or approvals are still in progress.
A land loan usually comes first when:
- The land is raw or partially improved
- Zoning approvals are not finalized
- Construction plans are not fully permitted
- The investor wants flexibility in project timing
Land loans allow investors to secure the site while preparing for construction financing.
Understanding the Role of a Construction Loan
A construction loan funds the vertical build of the project after land acquisition. These loans are structured with draw schedules tied to construction milestones.
Construction loans typically fund:
- Site preparation
- Infrastructure and utilities
- Building materials and labor
- Project management costs
Many industrial banks and specialized loan agencies offer construction financing tailored to BTR developments.
When a Construction Loan Comes First
In some cases, investors can bypass a standalone land loan and go straight into a construction loan.
This happens when:
- Land is already owned free and clear
- Land purchase and construction close simultaneously
- Zoning and permits are fully approved
- The lender offers a combined land-and-construction structure
This approach reduces closing costs and eliminates interim refinancing.
Combined Land and Construction Loans
Some lenders offer a combined loan that covers both land acquisition and construction under one facility.
Benefits include:
- One underwriting process
- Lower total fees
- Streamlined draw schedules
- Easier transition to DSCR or permanent financing
This option works best for experienced investors with shovel-ready projects.
How Lenders Evaluate the Sequence
Lenders evaluate whether land or construction financing comes first based on:
- Project readiness
- Entitlement status
- Investor experience
- Market demand
- Exit strategy
Clear documentation and a defined timeline increase lender confidence.
What Texas BTR Investors Should Know
In Texas markets like Dallas, McKinney, Prosper, and DFW, land often moves faster than financing approvals. Investors who secure land early with a land loan are better positioned to compete and negotiate favorable terms.
Working with lenders familiar with industrial loans and BTR development helps investors align land and construction financing efficiently.
The Transition to Permanent Financing
Once construction is complete and the BTR community is leased, investors typically refinance into DSCR loans or long-term portfolio financing.
This final step converts short-term development debt into stabilized, cash-flow-based financing.
Working With the Right Financing Partner
Because land loans and construction loans must work together, partnering with an experienced loan agency like Terrydale Capital ensures seamless transitions between financing stages.
Final Thoughts
For most Build-to-Rent projects, the land loan comes first—followed by construction financing once approvals and planning are in place. However, experienced investors may benefit from combined loan structures that streamline the entire process.
Understanding when to use each financing tool allows BTR investors to move faster, reduce risk, and scale more efficiently in Texas’s strongest rental markets.
Partner With Terrydale Capital for Your Debt Financing Needs
When it comes to debt financing, understanding the right timing, process, and options is crucial. At Terrydale Capital, we provide a comprehensive range of commercial loan solutions tailored to meet your business's unique needs.
Success!
Product has been created successfully!
Headquartered in Dallas, Texas, Terrydale Capital is a leader in commercial real estate financing. We have close relationships with the nation’s top banks, lenders & family offices allowing us to provide the most competitive financing solutions in the market.
