Hello,

I need some advice/direction from those of you that have been here before. Let me fill you in a little on my situation. I have been in real estate but I am new to development, having never built and sold anything. My goal is to start out slow and small, so I can gain the experience desired so badly by the lenders, and grow into larger deals. I found a Hi-density residentially zoned lot with an abandoned house on it. I have connections with the owners to buy the land for next to nothing ($50k). I then want to build a four unit basic Townhouse and sell the individual units. My projections are that I could sell the units for 165K-185K each. Each unit would be approx 1200 sq ft and I would have them built modularly. I was quoted at $100 dollars a sq ft to build. This puts my costs at roughly $550K with revenues from $660-740k on the first 4 unit building. After I built and sold those I would still have density for a second 4 unit building. I have a 750 credit score, make 75k a year, and want to get this project going with as little money down as feasible. I would set up an LLC and I have a couple of private investors that want to invest in the project (although not enough to cover the whole thing). My questions are:

1) How much cash would I need to start/maintain this project?

2)What type(s) of loan(s) should I be looking for?

3) What are the available sources for the money?

4) What traps/pitfalls should I watch out for in establishing an LLC with multiple investors?

I am not locked into anything at this point. Any and all advice and information would be greatly appreciated. Thanks.

1) How much cash would I need to start/maintain this project?


Theoretically, you could go ahead and get part of the land financing right now and need only twenty thousand or so for the acquisition. In practice, I would want to concentrate on getting the construction financing down. This means that it would be best to finance the acquisition on your own.

I also think that you are missing a couple of costs in your equation. Site work? Interest expense? Contingency? Permits? Impact fee? RE Taxes? I do not think that the $100 per Sq. Ft. are all inclusive.

2)What type(s) of loan(s) should I be looking for?


Eventually a construction loan. To make your case more saleable you will need. Free and clear land, approved plans, construction budget, experienced contractor, and presales.


3) What are the available sources for the money?


Your idea of private investors is something that I see being used by small and large developers. Going to need about 25% equity in the project to make it happen and finance the rest. However, I do not see the cash flow there to make it very attractive. I would say that costs are probably going to come in at about $625,000.

4) What traps/pitfalls should I watch out for in establishing an LLC with multiple investors?


Talk to an attorney.

Thanks for the quick response. I understand that the margins are not huge for this deal. My primary goal is to make money, of course, but I am also doing this for the experience I will recieve and the confidence my investors will gain in me in order to tackle bigger deals in the future. Just so I understand you correctly, you are saying I should buy the land outright, then approach the bank with full title and obtain a construction loan with 25% down to complete construction? Also another question that I have now is where am I going to be able to find the best construction loan for this type of project? Local Bank? Commercial Bank? Mortage broker? Could I get any kind of residential loan since it is only 4 units? There are no impact fees in my area, I can do the site work myself, and the only permits I need are to hook up to town sewer, so I save some costs there. Since this is not a big project I only need to get Town approval and that isnt too expensive. I am basically going to be trying to fly under the radar by keeping it small and once I get some experience, then I will move to bigger deals where I need to get State approval. Once again, any and all advice/info is greatly appreciated. Thanks again.

any advice?

Honestly, I doubt that you will find a lender willing to do this due to the lack of experience. I hesitate to tell you do this or that, because chances of success are low. I can tell you what I would do in your place.

1- Yes I would do the land purchase with my own money.
2- The money that I spent on the land would be counted as part of my 25%.
3- A commercial bank would be your first choice. I have a preference for small and medium sized banks. Not sure how receptive the big regionals or nationals are on these types of projects.

In reference to residential financing, the answer is that I do not know.

Thanks for spending the time to help me out. I know that this deal could be a longshot, but I gotta start somewhere!! If anyone else would care to give me their 2 cents on any of this, it would be appreciated!

~THA noob

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