The town I live in recently, through a study determined the only 1% of available real estate was zoned for residential.
I'm interested in getting thoughts on cash flow through commercial development.
I do not know what you are asking??
You can buy land and sell it off. You can also decide to get the site plans approved and apply for the permits and get a construction loan.
Construction loans are about 75 to 80% loan to cost so you have to put money down. The loans are usually 4 to 5% interest only with draws as the project moves along. You either refi or convert into a perm loan once built and pre-leased to a certain point or you sell off to a buy and hold investor or and end user.
So you could have 4 buildings for example and sell 3 to an investor and one to a business for an end user. You can also keep the land and do a ground lease. Lot's of options and ways to go with commercial development. You do not really have any cash flow when you are developing. Until you get the project to a certain point it will be negative and then as tenants sign advance leases you build the exterior shells and then the interior is finished with whatever TI's are negotiated. Rent commences when the tenants takes occupancy generally.
So some cash will start coming in when tenants start occupying and lease up velocity occurs but will go to debt service for the construction loan. You can JV with a developer if you have a hard time qualifying on your own for a project. In some areas projects take years to get entitlements because of all the red tape in a particular county or city.
Thanks Joel, I had no knowledge of how it worked. Now I have an idea.
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