We Built Our First House With Hard Money: Here's What We Learned | New England REI Podcast #1
- Marc Santos
- Jun 2
- 9 min read
I've been funding loans in Rhode Island, Massachusetts and throughout New England for years. And I've watched dozens of first-time builders learn the hard way. When experienced investors who've flipped houses for years decide to build a house from scratch, they assume their experience translates. It doesn't.
That's exactly what happened to Lou Barrows and James Proctor when they came to me for construction financing. Despite Lou's 17+ years as a realtor and James's two decades in mortgage lending, neither had managed a construction project from foundation to final sale. I sat down with them on my podcast to discuss their project—complete with budget overruns, weather delays, and surprise costs.
Key Takeaways
Budget 20% extra for your first build—Lou and James went exactly 20% over their original construction budget on their Cumberland, RI project
Get multiple quotes for every trade, not just the big items like framing or roofing
Plan your exit strategy before you break ground—a hard money construction loan is short-term and expensive
Winter construction in Rhode Island means shoveling for inspections, not just access—Lou and James learned this during Cumberland's record snowfall
The cheapest contractor bid often becomes the most expensive timeline delay
In This Article
The 6 Biggest Mistakes First-Time Builders Make
When I evaluated Lou and James's loan application and watched their project unfold in Cumberland, Rhode Island, I saw these lessons play out in real time. Here's what I observed as their lender.
1. Skipping Multiple Quotes on "Small" Items
"We got multiple quotes for everything that we did like electrical, heating, and plumbing. Some of the stuff we just took it for granted," Lou told me. "Everything costs more than we thought it was going to."
The insulation alone became a $4,000-$5,000 surprise when building code requirements changed mid-project. They went from standard R30 batts to blown-in insulation—a 40% cost increase they didn't see coming.
"If we got multiple quotes, we would have been more prepared for the insulation aspect and all the other things that cost more expensive than we thought."
2. Poor Cash Flow Management During Permitting
Working with the Cumberland building department, the permitting and design phase took nearly four months. During that dead time, Lou and James weren't getting quotes, weren't finalizing contractor schedules, weren't doing as much productive work toward the build while they had the time.
We get it, other projects, other life priorities get in the way and become priorities. Lesson learned: Make the time to take advantage of extra time during permitting to lock in your contractor quotes and secure multiple bids for everything.
"We could have done, made better use of that time," Lou admits. "Getting more quotes on lumber, getting more quotes on the mechanicals. These are the things you're learning along the way."
3. Choosing Contractors Based Primarily on Price
Their electrician gave the cheapest quote but was a one-man operation. What should have been a two-week electrical rough-in stretched to five weeks.
"That was a misstep that I made, making a decision based on price cost, but in the end it cost us money because carrying costs, all that's a real thing," Lou says.
When you're paying my rates of 9.99% to 14% interest on a construction loan, every delayed week costs real money, not to mention the scheduling nightmare of now having to reschedule all the follow-on contractors and timelines.
4. Underestimating Site-Specific Challenges
Their lot looked simple on paper. Reality was different:
The septic system got installed too close to the house initially and had to be moved
They had to raise the house five feet higher than planned due to septic restrictions
The higher elevation meant building retaining walls on both sides
Water service wasn't available at the property line in Cumberland—it required an $8,000 "live connect" from the middle of the street
5. New England Weather
Building through a Rhode Island winter means more than just slower work. Lou and James spent weekends shoveling three feet of snow so Cumberland inspectors could see the septic system, water connections, and other buried infrastructure.
"You're not just shoveling the driveway and you're not just trying to get people interested in purchasing the home with three feet of snow," James explains.
"You're shoveling the backyard to show certain parts of the septic so the town will come out and take a look at it." Everything halts until these inspections are complete. Backbreaking shoveling was not just a necessity, it was an urgent necessity to keep the project moving for a Spring listing.
6. Inadequate Contingency Planning
Most first-time builders budget 5%-10% for overruns. Lou and James ended up 20% over budget.
"I would say personally, a 20% reserve would probably be really safe, a minimum of 10, but I think 20 is really where you want to be," Lou recommends.
I personally couldn't agree more. I always budgeted for 20% cost overuns on my projects as both a flipper and as a builder. Inevitably, I found many projects came close to that 20% and so I never lost money on a deal. If my project came in on budget then I had a little extra profit.
Hard Money Construction Loans in Rhode Island: What You're Actually Signing Up For
Lou and James came to me for their construction financing because they needed speed and flexibility. Construction labor costs in New England continue to rise, making speed even more valuable. Here's what a hard money construction loan in Rhode Island actually looks like.
The Real Cost Structure
My construction loans aren't cheap, but they're fast and flexible. I offer:
Interest rates: 12% to 14% annually
Origination fees: 2 to 4 points (2%-4% of loan amount)
Loan term: 12 months standard
Leverage: Up to 80% of purchase price, 100% of construction costs. If we are talking vacant land then I fund up to 60% of the lot purchase price plus 100% of construction costs
On Lou and James's construction loan at 12% with 3 points, they were looking at:
$33,600 in annual interest ($2,800/month)
$8,400 in upfront origination fees
Total loan cost: about $42,000 for a 12-month project
Why Timeline Matters More Than Rate
Every month your project runs long costs another $2,800 in this example. Lou and James planned for six months but took nine months to complete. Those extra three months cost an additional $8,400 in interest.
At the same time, the fact that they poured into this project and got it listed and sold fast saved them $8,400 had they used the full 12 month term. That's $8,400 straight to their bottom line. Quick turnarounds for construction draws help enable them to move as quickly as possible while keeping contractors paid so they can remain on their project vs. moving to someone elses
"You don't want to have margins that thin where you're not making money if it's off by 10%," James explains.
The Draw Process Reality
Construction loans release money in draws as work gets completed. My construction draw schedules move quickly because I use my own funds rather than institutional money. I typically visit the property within 24 hours of a draw request and can wire funds the same day if everything checks out.
Expect to bring:
20%-50% cash down depending on experience
Enough cash to start work before the first draw
Reserves for carrying costs and overruns
Real Project Numbers: What This Build Actually Cost
Lou used a home equity line of credit to buy their Cumberland lot for around $100,000, then came to me for our Rhode Island lending program. Here's how the numbers worked:
The Investment Breakdown
Land acquisition: ~$100,000 using HELOC
Construction: Raised ranch, ~1,900 sq ft, 3 bedroom/3 bath
Actual construction cost: 20% over original budget
Hard money loan term: 9 months (from my 12-month loan)
Sale price: $599,000
Original ARV estimate: $550,000
Total timeline: 18 months from land purchase to sale
They were conservative on their ARV calculations and beat their estimate by nearly $50,000. That cushion helped absorb the cost overruns. That's one thing I loved about working with Lou and James. I know them personally, and I know that they are diligent, responsible, smart people who plan conservatively.
As first time homebuilders, some mistakes and overuns were completely expected and anticipated. Bottom line, I trusted them because of their track record and their integrity.
Major Unexpected Costs
Water connection: $8,000 for live connect from street
Insulation upgrade: $4,000-$5,000 due to code changes
Retaining walls: Both sides of house due to elevation changes
Septic system: $32,000 total (had to relocate once due to Cumberland regulations)
New England-Specific Construction Challenges
Building in Rhode Island brings unique challenges you won't face in warmer climates. As a Rhode Island hard money lender funding construction projects across New England, I see these issues repeatedly.
Winter Construction Reality
That record snowstorm hit right during Lou and James's final inspections. "You're sitting there shoveling the backyard to show certain parts of the septic so the town will come out and take a look at it," James explains.
The town requires visual confirmation of buried systems for the certificate of occupancy. Three feet of snow doesn't exempt you from that requirement.
Code Changes Mid-Project
Rhode Island updated insulation requirements during their build. Lou's advice: "Next time I'll know to have the plan stamped that we're putting in the heating systems ahead of time."
They could have fought the change but chose to pay extra to keep the project moving. Sometimes that's the right call when you're paying construction loan interest.
Local Building Officials
"Some towns are very user-friendly. Cumberland is somewhere in the middle, depending on who you get or what day you catch them on," Lou told me.
Building relationships with local officials matters. When you're building your first house, having allies at the Cumberland building department helps navigate unexpected issues. I see this benefit my borrowers repeatedly.
What They'd Do Differently Next Time
Lou and James are planning their next project with me. Here's what they learned from their Cumberland experience:
Better Team Assembly
"Getting a good team together, as you learn and do more projects, you're going to have your electrician, your plumber, whoever it is that works well with you and your timeline," James explains.
Quality contractors who stick to schedules are worth paying more for when you're dealing with construction loan interest rates.
Time Management
"Time is money, so just make best use of the time that you have," Lou says. Use permitting delays to get quotes, line up contractors, and handle administrative tasks.
Daily Project Management
Lou visited the Cumberland site every morning and evening to coordinate trades and catch problems early. "If the electrical isn't done, you want the plumber in there first because they need the most space. The electrician can work around the plumber."
Partnership Structure
They divided responsibilities clearly: James handled finances and paperwork, Lou managed construction and contractors. "Having known each other since sixth grade" helped, but clear role definition mattered more.
Frequently Asked Questions
How much extra should I budget for my first construction project?
Budget at least 20% over your initial construction estimate. Lou and James ended up exactly 20% over budget despite having real estate experience. First-time builders often face more surprises.
Can I use a home equity line to buy land for construction?
Yes, James used a HELOC to purchase the lot, then used the land as collateral for the construction loan. This is a common strategy that doesn't require cash sitting in the bank. It also saved them interest costs by using a lower interest heloc during the prolonged permitting process where little actual construction work takes place.
How long does ground-up construction actually take?
Lou and James planned for six months but took nine months to complete their Cumberland project. Factor in permitting delays, Rhode Island weather, and the learning curve. Plan for 12-18 months from land purchase to sale for your first project.
Should I get multiple quotes for every trade contractor?
Absolutely. Lou's biggest regret was accepting single quotes on items like insulation and electrical work. Multiple quotes reveal both pricing differences and quality/timeline variations between contractors.
Is a hard money construction loan worth it in Rhode Island?
A hard money construction loan makes sense when you need speed and flexibility. Interest rates are higher (10% to 14%), but approval is faster and based on the project, not just your W-2 income. Just budget for the higher carrying costs.
Building your first house from scratch is intimidating, but Lou and James proved it's doable with the right preparation and realistic expectations. Their 20% cost overrun on the Cumberland project became manageable because they were conservative on their ARV estimate and sold for $599,000 instead of their planned $550,000.
The key is understanding that your first build is education as much as investment. The knowledge Lou and James gained—about contractors, timelines, Cumberland permits, and costs—becomes the foundation for more profitable projects ahead. That's why I'm funding their next project.
If you're planning a ground-up build in Rhode Island or Massachusetts and need a hard money construction loan that moves at your pace, start your application here. I evaluate every project as if I were doing it myself, use my own funds for fast approval, and can provide same-day approvals for qualified deals.
Your first build will teach you more than any book. Like Lou and James discovered, working with a local lender who understands New England construction challenges makes all the difference.
The information provided here is for educational purposes only and does not constitute financial or investment advice. Always perform your own due diligence and consult with qualified professionals before making investment decisions.
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