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financing construction of small condo

Posted by: miamicanes Apr 25 2004, 06:48 PM
My best friend and I are considering the possibility of forming an LLC to purchase a lot and develop a condo with two large units (one for each of us to own as our primary residence) and one efficiency (for my friend to purchase and own as rental property). Basically, he has enough equity in his current home (which he's planning to sell once the condo is ready) to pay for the big unit outright and finance the efficiency over 10 or 15 years, but minimal up-front cash (less than $5,000). In contrast, I have enough cash to easily make a 15-20% down payment for a conventional 30 year mortgage on a 180-200k condo.

The main problem is that we'd have the resources to easily buy our respective units if somebody else built them and they were simply on the market, but neither one of us has the resources to single-handedly finance the whole thing in his own name from start to finish with a conventional construction loan (most of which seem to be targeted towards married couples building a single-family home, as opposed to small-scale multifamily construction backed by two or three partners, even if the ultimate result (each partner owning his own respective unit) is basically the same.

Assuming we could convince the bank that valuing the units at 2/5, 2/5, and 1/5 of the total construction cost (plus any unit-specific amounts due to individual upgrades to floorcoverings, fixtures, etc. above the baseline we established for estimating the total cost) is reasonable, will a bank actually structure multiple combination loans (for lot purchase and construction, automatically converting into a permanent loan) for a fractional part of a condo project -- assuming, of course, that it's handling the financing of ALL the fractional parts? Or do we have to go with Plan B™ -- purchasing the lot and developing the building using lot purchase and construction loans in the LLC's name (and ourselves as guarantors), then sell it to ourselves when it's complete (financed via conventional individual mortgages)?

For lot purchase purposes, does it matter to the bank whether there's already a building on the site? To give a specific example, we found a lot that's zoned for medium-density multifamily residential that meets all of our criteria (I personally visited the city zoning dep't. with the plans last week to verify that they passed all the obvious restrictions) that has a highly-demolishable single-family house on it (the seller himself doesn't even pretend the house has any value). Will the building's existence derail the lot's qualification for lot-purchase-loan purposes, or will the bank simply subtract the house's value from the total value and lend us whatever LTV of the remainder it's willing to extend?

One thing we're VERY worried about is the possibility that lenders will rely almost exclusively on historical sales data for the neighborhood with little regard to its obvious future (the whole area is undergoing massive gentrification) and impose a maximum loan-to-value/build-to-value that's below what it will actually cost to build. If that happens, how do lenders treat funds used to meet the shortfall? Do they view anything spent above the maximum value as having been dumped into a black hole, or would they still credit it towards the down payment? To give a concrete example, suppose I manage to get away with paying 5% of my unit's ultimate purchase price to the LLC for application towards the construction loan, and hold back the remaining $15,000 or so. Then, when it becomes obvious that the amount the bank's willing to lend is less than the amount it will cost to build, I have the LLC execute an agreement with me whereby I'll pay another 10% of my unit's ultimate sales price (AFTER the loan has already been issued, so the cash will be in the LLC's bank account instead of getting sucked into the construction loan's downpayment), and the LLC applies that later payment to cover the shortfall between the construction cost of MY unit and what the bank was willing to value it as. When the time comes to close on the unit, let's assume it actually did cost $200k to build my share of the building, but the lender is only willing to value it at $180k. Assuming I insist on paying the full $200k (not that I'd have much of a choice, since ultimately that was how much I'd be liable for anyway), will the lender view the $20k paid up to that point as having been incinerated and treat my mortgage as a nonconforming low-money-down loan, or will they still go ahead and treat it like a $20k down payment and issue the $180k mortgage for the remainder?

Also, do banks tend to insist upon hiring a builder to do EVERYTHING from start to finish, or would they be likely to agree to a plan whereby 80-90% of the construction cost goes towards one builder to deliver a building in "decorator-ready" condition (unpainted walls, bare cement floors, kitchen roughed in sans cabinets) and let us (the ultimate unit owners) be our own contractors after closing (with the remaining 10-20% budget) to hire subcontractors to finish off all the decorator details that seem to give builders the most opportunities to shamelessly mark things up to obscene levels (stuff like kitchen cabinets, tile, carpet, etc. where it might cost $5,000 to buy the cabinets from Home Depot and $2,000 to pay someone to install them, but a builder wouldn't hesitate to charge $25,000 for the convenience of one stop shopping)? I guess kind of like getting a mortgage with $15-20k quasi "home improvement" loan right up front to finish off the job more economically?

Posted by: loanuniverse Apr 25 2004, 10:33 PM
Miamicanes:

This is my feedback. Take into consideration that there are many ways that funding can be structured, if I come up with one way that does not mean that it is the best way to do this. It is just the one that makes the most sense to me.

First, let me say that you are probably thinking of building a duplex or maybe a triplex, but I would not call it a condominium. {at least in my opinion}. Now let me see if I can address the parts that made me think, and play a little bit of devil’s advocate.

… but neither one of us has the resources to single-handedly finance the whole thing in his own name from start to finish with a conventional construction loan… Ok, but what is really changing by filing articles of organization and starting an LLC? The lender is still looking at loan-to-cost in case of construction and loan-to-value “as completed”.

… (most of which seem to be targeted towards married couples building a single-family home, as opposed to small-scale multifamily construction backed by two or three partners, even if the ultimate result (each partner owning his own respective unit) … You are right about this. Approaching it from a primary residence construction loan angle, this request does not fit the mold. Nevertheless, you guys might want to approach a residential lender to see if they can make it fit. A three-unit property is well within what is considered a residential loan.

… (for lot purchase and construction, automatically converting into a permanent loan) for a fractional part of a condo project -- assuming, of course, that it's handling the financing of ALL the fractional parts? Or do we have to go with Plan B™ -- purchasing the lot and developing the building using lot purchase and construction loans in the LLC's name… So plan A is to do a residential acquisition/construction/permanent combination, and plan B is essentially doing the same with the difference being that plan B is under the LLC’s name. The answer is that the loan or loans can be structured either way, you just have to find a lender that is willing.

… For lot purchase purposes, does it matter to the bank whether there's already a building on the site?…. Not really. If for example you were going to do it in stages, the land acquisition loan will be based on the estimate of value of the land given by the appraisal. If the appraiser says that the house is worthless, then the estimate of value will reflect that.

… One thing we're VERY worried about is the possibility that lenders will rely almost exclusively on historical sales data for the neighborhood with little regard to its obvious future (the whole area is undergoing massive gentrification) …. Potential and $10 will get you lunch. Banks are not in the business of determining value, we leave that to professionals. The appraiser will use the fact of how new constructions are selling in the area when coming up with the estimate. The whole scenario that you listed left me very confused. Frankly, you have to keep it simple. The transactions between you and the LLC are not arms lengths transactions. The amount of the loan is based on the loan-to-value and loan-to-cost. The loan-to-value is going to be given by an independent appraisal, the loan-to-cost is going to be based mostly on the contractor’s budget and is going to be given by the sources and uses of funds.

One of the reasons why I think you should not go commercial is that if you go commercial, the amount of the loan is usually less than the one that is available to individuals and personal residences. Most lenders will restrict the loan-to-value at 80% and the loan-to-cost even lower at around 75% {the ratios change from lender to lender} as a matter of policy.

.. do banks tend to insist upon hiring a builder to do EVERYTHING from start to finish,… In commercial lending the lender does not do any of the hiring. We get information on both the architect and the general contractor {resume, similar projects, background…}. In addition, we require the contractor to be bonded and the final payment is subject to a certificate of occupancy. Furthermore, our commercial real estate lending department knows most of the contractors that deal with projects of the size that we finance, and if they don’t they know another lender in another bank that does. Your proposal is highly irregular. I don’t know about residential construction loans to individuals… maybe you can convince one of those lenders.

In conclusion, I think that you need to sit down with an actual lender so that you can go over your needs and resources. The whole situation is out of the ordinary, and will take some convincing. The one thing that you won’t be able to convince the lender about is to give a loan at a higher loan-to-value than they would be comfortable with.

Good luck and hope this helps.

Posted by: miamicanes Apr 25 2004, 11:37 PM
Thanks for the quick reply :-)

Just to add a few clarifications...

QUOTE
First, let me say that you are probably thinking of building a duplex or maybe a triplex, but I would not call it a condominium.


Hmmm. I guess it's a Florida-ism. Around here, "duplex" and "triplex" almost exclusively mean "low-income rental property"... and "townhome" has a specific legal definition that our proposed building wouldn't meet (by Miami-Dade definition, a "townhouse" is a vertical slice of a lot associated exclusively with a single owner (ie, there can't be different people owning a unit above or below it), separated from adjacent townhomes by a thick cement wall that extends up and above the roof (and looks about as ugly as the description implies. I made a point of confirming that there are zero exceptions to the "extending above the roof tile" rule, even if the "real" roof is a reinforced concrete slab and the trussed roof above it is just an ornament).

QUOTE
Ok, but what is really changing by filing articles of organization and starting an LLC? The lender is still looking at loan-to-cost in case of construction and loan-to-value “as completed”.


Basically, nothing besides giving the lender a single commerical entity (with multiple guarantors, of course) to deal with instead of two individuals. The general theory is that if we're going to be forced into handling it like a commercial real estate development, we'll probably have better luck if we humor the bank and do our best to make it look like one.

QUOTE
The answer is that the loan or loans can be structured either way, you just have to find a lender that is willing.


You mean there really ARE lenders who'll execute two or three combination loans, each for some fractional part of the same condo project? I actually came up with that example as a hypothetical possibility and pretty much took for granted that no bank would ever actually go along with it. That was why I was exploring the "let's pretend we're commercial developers and treat it like a normal residential development project" strategy... I figured trying to do it as a residential development was doomed to instant rejection by banks by virtue of being unconventional, but by making it resemble something that banks ARE familiar with (a multifamily residential development), we might have a better chance of getting it approved.

QUOTE
In addition, we require the contractor to be bonded and the final payment is subject to a certificate of occupancy.


Sigh. I guess we're just going to have to bend over and let the contractor charge us twice the real cost of the kitchen cabinets and floorcoverings, just like everyone else... or have them put in cheap linoleum and laminated particleboard cabinets with the intention of ripping everything up the week after closing to put in the real tile/carpet/cabinets. It just sucks having to play games and either pay for the installation of cheap stuff that's going to be instantly ripped up and replaced at a savings of thousands of dollars, or waste even more money for the satisfaction of having it done right the first time (but at punitively outrageous markups). Oh well... at least we'll be able to buy decent appliances from Best Buy the first time around instead of having to endure a decade of the cheapest, most bottom-of-the-line appliances a developer could possibly buy (with upgrade prices that make it cheaper to just take the "free" appliances, dump them by the curb, and buy new ones from Best Buy on sale to replace them. It's positively *sickening* what most people buying new homes/condos let builders get away with charging for things like appliance upgrades and window coverings just so they can roll the costs into their mortgage instead of having to pay for them up front.

Posted by: loanuniverse Apr 26 2004, 06:18 AM
… we'll probably have better luck if we humor the bank and do our best to make it look like one… Ok point taken, but the bank will only be swayed by repayment and loan-to-value. The fact of a single borrowing entity is like number 20 in their priority list.

… You mean there really ARE lenders who'll execute two or three combination loans, each for some fractional part of the same condo project?…. Is that what you meant? If that is the case, nope I don’t think there will be much chance of that. I meant doing the whole thing in stages or doing it under your names or an LLC entity. The scenario of two or three borrowers getting loans for portions of the project….. does not seem feasible.

… we might have a better chance of getting it approved. Do not want to discourage you, but not really not with those loan-to-values and loan-to-costs. Talk to a lender in your area. In fact,, talk to two or three.

… and let the contractor charge us twice the real cost of the kitchen cabinets and floorcoverings, just like everyone else... Got to look at this from the point of view of the lenders. How do they know that your work will be up to code and quality? Trust me the lender does not want to play games. It is all about doing things right to minimize risk.

Posted by: miamicanes Apr 26 2004, 10:05 PM
OK, shifting gears slightly...

Today I spent the afternoon at work refining the strategy for organizing the funding to buy the land and pay the builder.

Here are the basic highlights of the idea:


  • My friend and I will form a Florida LLC and issue a thousand shares of stock with $1,000 par value (apparently, Florida charges some amount per share, so issuing fewer shares with bigger values will hopefully save some token amount of money). We're not planning to spend even half that potential amount, but I know it's a major pain to issue more stock in the future, so it's probably prudent to leave enough potential stock to handle taking on another partner and adding another floor should the need/opportunity arise between now and completion.

  • We'll both obviously have to be personal guarantors on the loans, but by purchasing stock (from my savings, and from my friend's home equity line of credit) and paying all the bills related to the project from the LLC's checking account, we'll have a fairly orderly way of keeping track how much money I owe my friend towards my fair share of the construction costs when everything is done.

  • Ultimately, the sales price of my unit will be 2/5 the total costs spent and borrowed by the LLC. When the day comes to close on my unit, the LLC will buy back my shares at their par value and credit them against the sales price of my unit, effectively serving as my down-payment (the ultimate lender SHOULD accept this as my down payment, RIGHT?!?). My friend will do the same when purchasing his two units. At that point, once he's closed on his units, the lot purchase and construction loans should be paid off, and the LLC can be dissolved.


There's actually a very good (I think) reason I can think of to structure the whole process through a LLC rather than as simple business partners... the remote (but financially devastating) possibility that one of us might die or become incapacitated between purchasing the lot and closing on our units.

As I understand it, "99.999%" of lenders give themselves the right to treat the death/incapacity of ANY guarantor as a default and liquidate the whole project. What I'm hoping is that if the unthinkable happened, I might be able to talk the lender (who hopefully REALLY doesn't want to foreclose) into accepting my parents as guarantors instead of my friend (they're retired, but have approx. $400k in home equity) so I could finish the project and avoid losing my life's savings in addition to my best friend. By locking the LLC's investors (the two of us) into the earlier of 18 months or unit closure, we could hopefully ensure that if the other died, his heirs would acquire ownership of his stock, but couldn't actually pull out of the project or force its liquidation over the remaining partner's objection.

Does it sound like I'm more or less on the right track so far?

Posted by: loanuniverse Apr 27 2004, 07:36 AM
… My friend and I will form a Florida LLC and issue a thousand shares of stock with $1,000 par value (apparently, Florida charges some amount per share, so issuing fewer shares with bigger values will hopefully save some token amount of money)….. Hmmm you don’t issue shares of stock under an LLC. You file articles of organization. You are thinking of articles of incorporation where one of the articles should be the number of shares and the par value. Maybe you should recheck that. Frankly, the whole idea of buying stock is an unnecessary step from the point of view of the lender. If you decide to incorporate and issue stock, you might as well issue 100 shares at $0.01 par value and infuse the capital as additional “paid in capital”.

The truth is that the lender will look at this the following way:

The project is building a 3 unit building that might be valued at $500,000 at completion and that might cost $400,000 to build. {I am using estimates here}. If the lender has rules into its credit policy that require 75% loan-to-value and 80% loan-to-cost then you guys will have to come up with at least $80,000 in order to get over that hurdle. In addition, you will need to make the lender comfortable with the whole idea.

…. Ultimately, the sales price of my unit will be 2/5 the total costs spent and borrowed by the LLC. When the day comes to close on my unit, the LLC will buy back my shares at their par value and credit them against the sales price of my unit, effectively serving as my down-payment (the ultimate lender SHOULD accept this as my down payment, RIGHT?!?)…. This is a question best placed with a residential lender. I would try to get the permanent financing worked out as part of the acquisition & development loan. In fact, as a lender I would like to have the financing in place ready and waiting.

Posted by: miamicanes Apr 27 2004, 04:37 PM
OK, I can take a hint... organizing it as a primary residence construction loan is probably our best bet. That said, would forming a LLC to purchase and own the lot throw any major monkey wrenches into the plan?

The way I see it, the LLC itself is at basically zero risk of a lawsuit (or at least at no greater risk than we'd collectively be were the lot jointly owned by us), and any creditors it winds up with will almost certainly require us both as personal guarantors anyway. HOWEVER, either one of us could individually have a car wreck tomorrow, have some girl vaguely remembered from a hazy night in South Beach show up with a kid and a paternity suit, or dozens of other causes. Shielding ownership of the land with the LLC would at least ensure that no PERSONAL creditor/heir/etc could come into the picture and forcibly derail the whole project & force its liquidation for reasons not arising due to the LLC's own actions.

As another safety measure, funding the lot's debt service using money raised by selling interest shares would ensure that if one of us were to get stuck holding the entire bill, at least that person would automatically own a proportionally greater share of the land by virtue of owning a greater share of a company whose only asset *is* the land.

Assuming I'm understanding you correctly, it won't matter to the lender one bit whether it's dealing with the application for a primary residence lot purchase + construction loan with one LLC and two personal guarantors, or two individuals jointly taking out the loan in their names... but unless I'm missing a major point, it seems like we'd be insane to *not* go the LLC route as long as doing so wouldn't force us into the commercial lending category. If anything, the LLC's ability to shield the company's assets from its owners' personal vulnerabilities should make the bank at least a little happier, since that would be one fewer thing that could go wrong between purchasing the lot and closing on our individual units.

I did think of one potential complication... I'm assuming that my friend will have to get a home equity loan to raise the up front cash to meet the shortfall between the maximum the lender will finance and the actual purchase price (as well as meet the initial debt service on that loan). HOWEVER, the mere act of getting the loan and drawing upon it is going to have a negative effect on his credit. Probably a big one, by the time we're done and he's had to borrow more than a hundred thousand dollars. Quite possibly, between the time the lot is purchased and the construction loan is initially disbursed. What would you recommend as his best strategy? Will a lender issue a lot + tentative construction loan and fix the terms up front, subject only to coming up with the required up-front cash and acceptable builder prior to the construction loan's final approval and first disbursement to the builder? Or will most lenders literally refuse to even talk about a construction loan without a committed builder and building-department-approved blueprints sitting in front of them?

By the same token, how badly will being a guarantor for a half million dollar lot+construction loan hurt me when I ultimately need to get my final mortgage to close on my unit? Is that a situation where lenders really WILL say, "well, his FICO score dropped a hundred points since last year, but there's nothing derogatory here and his being a guarantor on the loan used to build the unit he's now trying to buy probably is the main culprit... so we'll mostly ignore it and look at his income & debt ratios instead, and more or less pretend his score is still were it was last year?" Or are they more likely to jump for joy at finding a golden opportunity to hit me with an astronomical interest rate, knowing that I won't have much choice but to accept it at that point since I obviously won't want to end up seeing my unit get sold to someone else after spending the better part of a year working on making it happen?

Posted by: loanuniverse Apr 27 2004, 06:11 PM
….Shielding ownership of the land with the LLC would at least ensure that no PERSONAL creditor/heir/etc could come into the picture and forcibly derail the whole project & force its liquidation for reasons not arising due to the LLC's own actions…. Hmmm not really…. The reason for doing business under a separate legal entity is mostly to insulate the individual owners from liability arising from the business not so much the other way around. If anything it might protect you from liability if the land is contaminated, but chances are that if it has been historically been used as a residential home, it isn’t.

….As another safety measure, funding the lot's debt service using money raised by selling interest shares would ensure that if one of us were to get stuck holding the entire bill, at least that person would automatically own a proportionally greater share of the land by virtue of owning a greater share of a company whose only asset *is* the land…. No need to sell anything. You can specify who owns what percentage of what through some kind of written agreement. You know that you could even add a chapter to the articles of organization detailing the initial ownership interest. This can be changed as conditions change.

... but unless I'm missing a major point, it seems like we'd be insane to *not* go the LLC route as long as doing so wouldn't force us into the commercial lending category. If anything, the LLC's ability to shield the company's assets from its owners' personal vulnerabilities should make the bank at least a little happier, since that would be one fewer thing that could go wrong between purchasing the lot and closing on our individual units You are overestimating the potential pitfalls, and not taking into consideration other problems. For one thing, it is another tax return to file. It can also work against you when trying to get residential financing. Then again I am talking here about two things that while more knowledgeable than most, it is not what I do. I am not a residential lender, and I don’t incorporate companies for a living… Make sure to read my disclaimer.

the mere act of getting the loan and drawing upon it is going to have a negative effect on his credit. Probably a big one, by the time we're done and he's had to borrow more than a hundred thousand dollars. Quite possibly, between the time the lot is purchased and the construction loan is initially disbursed. What would you recommend as his best strategy? Try to get a loan a construction loan that turns into permanent financing.

Will a lender issue a lot + tentative construction loan and fix the terms up front, subject only to coming up with the required up-front cash and acceptable builder prior to the construction loan's final approval and first disbursement to the builder? Or will most lenders literally refuse to even talk about a construction loan without a committed builder and building-department-approved blueprints sitting in front of them? The construction loan will finance the construction costs. How do you know the amount of costs needed to be financed without being much further along in the process.


By the same token, how badly will being a guarantor for a half million dollar lot+construction loan hurt me when I ultimately need to get my final mortgage to close on my unit? Guarantees are contingent liabilities, they are not shown in the credit report, but must be disclosed in the personal financial statement.

Or are they more likely to jump for joy at finding a golden opportunity to hit me with an astronomical interest rate, knowing that I won't have much choice but to accept it at that point since I obviously won't want to end up seeing my unit get sold to someone else after spending the better part of a year working on making it happen Hmmm what kind of lenders have you been speaking to? I suggest you sit down and talk to one. Also remember what I said earlier about getting a construction loan that turns into permanent financing.

P.S: Remember that so far I have only commented on some of the issues, you still have to make a convincing case that you know what you are doing and that the loan will be a good credit risk. From what I have read, if this loan were to come in to the commercial side, chances are it will not even hit my desk as it would be shot down from the start. A lot of things have not been answered that need to be taken care of before a construction loan is considered. A land acquisition loan on the other hand is another thing, but it would also be highly speculative since you two lack experience.


Posted by: miamicanes Apr 27 2004, 10:39 PM
QUOTE
Try to get a loan a construction loan that turns into permanent financing


Hmmm. OK, any advice where to even start looking for a suitable lender? Or how to describe what we want in a way that will make it obvious what we need without scaring them right off the bat? Remember, the fundamental problem is that the lot purchase and construction loans ultimately need to end up as two separate and distinct permanent mortgages -- permanently extinguishing any joint liability once construction ends and we take possession of our respective units with our own permanent loans.

Brainstorming a bit more this afternoon, I actually came up with another possible strategy... forming a co-op to buy the lot and construct the building, with automatic condo conversion upon completion. On one hand, that strategy seems to neatly wrap our situation into a pair of well-defined niches. On the other hand, I've gotten the impression that banks won't touch a co-op with a fifty foot pole absent direct involvement by HUD... and HUD won't bother with projects smaller than 5 units. In any case, I'd want the condo conversion to happen as quickly as possible... ideally, before moving in. I'm sure YOU know, but for those who don't... the big danger with co-ops arises from there being a single mortgage on the whole building. If a condo's owner doesn't pay the mortgage, the bank forecloses on his specific unit. If a co-op shareholder doesn't pay his share of the mortgage for any reason (death, poverty, extended probate, whatever) and the other shareholders don't cover the shortfall, the WHOLE BUILDING can be foreclosed upon. Scary.

QUOTE
...you still have to make a convincing case that you know what you are doing...


You're absolutely right... which is why I'm trying to learn as much as possible *before* visiting an actual lender so they'll never see anything besides a polished, confident, well-planned strategy that lays out our plan in *just* the right way to make it appear that I know a lot more about the subject than I really do (or at least make it non-obvious that my domain knowledge is a very, very recent acquisition) wink.gif

Posted by: loanuniverse Apr 29 2004, 08:34 AM
color=green]… any advice where to even start looking for a suitable lender?….[/color] Your bank would be the best place to start. Miami-Dade benefits from having a lot of lenders. Give three or four a call and ask to speak to one of their lenders. I do not recommend specific lenders.

… I actually came up with another possible strategy... forming a co-op to buy the lot and construct the building, with automatic condo conversion upon completion…. All of this for a three unit building?

….Do not make things more complicated than they should be!

I would try to keep this as plain vanilla as possible. No reason to turn off some of the potential lenders by asking for something that they have not seen. There are already a couple of strikes against it.

Posted by: miamicanes Apr 30 2004, 01:52 PM
Well, I spoke to a representative from FreddieMac. We can scratch them from the list. They automatically classify anything with more than one unit as "commercial" sad.gif

QUOTE
All of this for a three unit building?


Well, the matter of ownership needs to get conclusively settled at *some* point. I mean, this isn't like two neighbors sharing the cost of a lawn mower or something.

As far as I can see, there are exactly three ways to establish independently sellable, purchaser-financiable residential units, one of which won't work at all:

  • dividing the property as townhouses won't work because there's no single vertical plane by which the property could be divided by a foot-thick reinforced concrete wall oriented perpendicular to the street. There are other reasons, but that's the main one.

  • officially developing it as a co-op might work, except for the fact that private lending institutions willing to finance the construction of a new co-op for non-poor residents don't seem to exist, period. As for HUD, THEY apparently won't sponsor it if it has fewer than five units or the units cost more than $140k (give or take) apiece . And, of course, as a co-op with exactly two owners, we'd both be at permanent risk of financial peril for the next 30 years if anything happened that affected the other's ability to pay his share of the mortgage. I could probably tolerate this option if there were absolutely no other way to do it, but I wouldn't be happy about it.

  • ... which brings us back to "condominium" as the one legal way to cleanly establish independent unit ownership. In any case, the need to file a Declaration of Condominium and pay the documentary fees are the *least* of our problems.

    Oh... I almost forgot. There's another REALLY BIG reason why the units need to have cleanly-defined independent ownership: Florida's Homestead Exemption law, which dramatically reduces the property taxes on one's primary residence.

  • Posted by: loanuniverse Apr 30 2004, 05:39 PM
    Why are you approaching the Government first? There are about a dozen commercial banks in Miami-Dade that I can think of.

    Have you explored developing the property as an income producing property and maybe do a condo conversion later?

    I don't know how you define "dramatically decrease", but my $25,000 homestead exemption does not make that much of a difference.
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