Need Help Structuring Deal
The 10acres of land was presented to me by a commercial broker. The parcel is in the up and coming growth area. The street is approved to expand and freeway access is under construction and high school is also under construction.
It is currently zoning agriculture and priced at 1M. Water, sewer, and electricity are available at the site. The parcel can rezone from agriculture to commercial. My cash is tie up in another project and i have little cash for this deal. I want to bring in investors but have no clue to structuring the deal.
My questions is:
what are my options in structuring this type of deal?
I think I can get $500K from couple of investors. how can I finance the remaining? If I finance with the bank, then I have to keep making monthly mortgages; who knows how long before I can sell the property.
after I changed the zoning to commercial, generally how much property increase in value? And after subdivide the parcel, how much property increase in value? Just wanted to get a rough estimate.
Your inputs are highly appreciated.
Regards,
Alex
Hi Alex,
I just completed a similar deal up in San Marcos. I found a lender that would loan more and hold back one years worth of payments in an interest bearing account so you dont have to make them. On this particular deal, the property value went up 33% after rezoning from AG to commercial.
~Aaron
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[ Edited by NancyChadwick on Date 03/11/2006 ]
putting 50% down is great, but you can finance 65% easily and probably alot more especially in San Diego. There are two lenders in Rancho Bernardo that are aggressively looking for these kinds of deals.
Why cant you qualify for a mortgage? If you have good credit, and can make the payments, you can obtain financing that doesnt require you to document your income. Even for investment properties. You could get the 1% rate loan to keep your payments down until you sold the unit.
For our projects, we can either take 80% LTC or 75% LTV. (Loan to Cost or Loan To Value).
If you show a project developmnt fee as a cost but tell/show the bank that you are leaving that $$ in the project as an OWNERS CONTRIBUTION, then it is the same as putting up that same amount of $$ down.
Just an idea. It has worked for our projects and it helps to keep the out-of-pocket/upfront costs down.
Also, your interest reserve should boost that cost up.
If the value is $2M. 75% of that is $1.5M which is what a bank should be willing to loan you.
Hard Costs = $1.5M plus SOFT COSTS (interest reserve, dev. fee, etc) and you could show your Costs to be $1.9M ($1.5M is 80% of $1.9M). You could easily get that loan and not need any $$ out of pocket. Plus have an interest Reserve to draw from on that $1.5M loan.
TI allowance, Project development, Marketing (same %,$$ as Proj Dev), Supervision, Profit & Overhead (+/- 10%) & all other costs associated with the project i.e. interest reserve, insurance, prop tax, etc.
The bank releases funds into our chkng account via monthly draw requests. [ Edited by ckoenig on Date 03/15/2006 ]
So if I structure the deal with this strategy what will be my upfront costs and will I still need to show that I have the 500k downpayment available?
Thanks for all of the feedback.
If you want to get in other projects you can sell and pay taxes or get the financing , keep 15-20% in the house and get out the other money for the project. Keep the house to enjoy rent and appreciation at may 5% a year on 85k
I think if there is enough income from the current tenants to pay the mortgage for aquisition cost, i would do that first..
Hey, So here is the trick for finding money. If you truly have a killer deal then go to the people you know and explain to them about the ROTH IRA. Within a Roth the owner can take money out, use it for a real estate deal, make profit, and put the money back in the roth without tax consequences. Simple as that.
Ask people that you know if they are happy with their current rate of return. If not then ask if they would be interested in 15% ROI secured by a 1st deed of trust at 70%(or whatever% the deal is).
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Paul Wells-The Foreclosure King[ Edited by paulwwells on Date 12/10/2005 ]
Do you have executive summary for any of your deals