New York, NY · Member since 2013 · 22 posts · 1 vote
I am new to the field of development and am wondering how the more experienced BPers got the financing for their first deals? Did most of you have large down payments of your own available to get financing approved? or did some of you use more creative financing techniques?
Hi Jean,
I'm a brand new RE investor and I don't claim to be an expert in strategies or concepts at all but I been put in a situation that sincerely will help me get the funding needed for my desired development projects..
While getting a estimate from a General Contracting firm I was approached by them in which they expressed interest in developing a business relationship. We've been discussing projects and have been building rapport for a couple of month and have now seriously Identified 3x development properties. To create that "Win-Win" situation for both business's what's been tentatively agreed upon is the General Contracting company will fund the total construction cost portion of my CPR(subdivision) development projects, if I guarantee use of their contractor, give them 20% of the net profit, and 12% interest on their principle.
Yes, I'm handing over tons of money to them but it's allowing me to build credibility by getting these projects completed and by teaming with well established general contractors which motivates others potential Private lenders to jump on board your projects when they see who you're working with.
So to get funding I'd say approach local General Contracting firms, tell them what you're doing, give them all the property details, exit strategies, (make a slide show presentation that paints the picture and offers estimates for the cost and time fame of the project) guarantee them business for reasonable rates, a net profit cut at end, if they team up with you to finance deals. They of all people understand the profitability of new home construction developments. If they see you being active, teaming with Realtors, being creative by identifying lots to subdivide and develop, they'll see a relationship with you will mean $$$$ to them now and in the future.
Depends on what you're going after. Are you talking about developing a small subdivision like 30-100 lots or are you talking about building a spec home? If it's the former you'll have to get creative because unless you have one hell of a balance sheet no bank is going to touch someone without experience. That being said you can JV, find investors, etc.
If you're just talking about building a house or two to get started that's much easier and smaller banks will likely deal with you.
To answer your first question - we usually pay cash for the land and then use a line of credit to pay for improvements and building costs for the first house or two. Usually ask the same bank to provide the letter of credit that cities require to make sure you finish your improvements.