Leveraging Real Estate

4 Replies

I need some experienced advice. I have a piece of commercial property I acquired with the intentions of building a beer garden. I want to build a 2000sq ft building. My rough estimate is 400K to do so. Or my other idea is to build the building larger with apartments above.

Currently, I own 5 rental properties, 2 of which are paid off and the land which I carry 103k on. I'd really like to leverage the equity and build a building but my cash flow is weak since I have a son in college.

Thoughts?

There's too many factors to your personal financial situation to give you any kind of reliable advice on what's possible in terms of construction funding. Your best bet is to talk to some local banks and explain what you want to do, and explore what your options are. If you have a significant amount of collateral owned free and clear, you ought to be able to use that to get a construction loan.

@Martin Nowak if you are positive you can make a beer garden work then you need to run the numbers to see if you can build the beer garden and support the debt and still retain cashflow equal to or greater than you currently have coming in. Let the numbers show you the way.

@Martin Nowak

Your best bet may be a private debt investor who likes the idea and is willing to give you a note on the project. This typically requires a high degree of trust, but I've done it before. Banks rarely ask where the equity came from in a project because they're going to take a first lien position. That can help you get a leg up. The last deal I worked on I got a 5 year note at 8% to limit the amount of cash I needed in the deal.

You should pitch your idea to banks though. They see many deals each month and quarter and they can provide you some valuable insight into what they like and dont like on your deal. Bankers are not in business to lose money, so their feedback can be very helpful. They are also risk averse, but listen to what they have to say.

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