Interest only loan — redevelop within 1 yr

[Brian Hager]

Hello all. First time poster, have been reading the forums for awhile now.

I’m a property developer with two partners. We have a property that we will develop from a single family home into four high end row homes. The zoning allows for this. The property next door is another single family home, also zoned for 4 units, and we have this under contract. The lot size, everything is an exact carbon copy. Great opportunity.

My question is this: I normally run the other way from interest only loans, but in this case, it makes a lot of sense. We close on the second property, cashflow by renting it while in permitting. I expect maybe 1 year in permitting with the city.

Normally, we syndicate these deals with other investors, but the potential profits are very attractive (up to 4x). I’d like to keep this one for myself.

I do have the option of not doing this through the partnership but purchasing the property myself, waiting until we are out of some other projects and my cash position is stronger, then redeveloping....

The math only works with an interest-only loan.

Do any of you know what is required to fund an interest only loan, documentation and numbers wise?

Property is under contract at $895k. I can rent it for 2.8k per month. I need it to cashflow. What are the interest rates now for a 5/1 ARM interest only? How much would I need down? Reserves?

Thanks in advance.