Commercial Real Estate - Financing New Construction
Hello,
We are prospecting a location for potential new development which may be Condos or apartments. I understand how conventional loans work, but what can I expect for a new construction project while in development?
For example, using simple numbers, let’s say our plan is to acquire the plot of land for $100K. We establish that the complete cost of Construction is $900K to build 10 Condos. Our intent is to have 2 strips of 5 Condos and sell them as quick as possible. We believe each strip will take 1 year to complete each.
- How much capital would be need to put down to secure a $1M loan for land acquisition ($100K) and funding for construction costs ($900K)?
- While development is happening, and no money is coming in yet, what are the carrying costs to consider? I realize there will be Taxes and Insurance costs, but what I am trying to clarify is when will we expect to start paying back the bank?
- And what is a healthy/realistic profit margin to be attractive to the bank/investors? (e.g. If each unit costs $100K, at min. would we want to resell for $110K (10% before resale costs), $125K, 150K etc.)
Many thanks in advance!