hello, im a hvac /plumbing contractor and have done rei in the past and present. here is my idea and question. we have a property free and clear that is 3.5 acres with income of $2500.00 of rent per mont on 4 old buildings. we did a market analysis and plans 3 years ago to build 72 apartments. everything looks good as far as zoning and city permits. the budget was 3.2M the property itself is worth 450k and the bankers gave us green light.
we didn't move forward with it because os the risk of it, we forecasted that we would end up owing more than 2.5 M and we did not wanted to risk that much by ourselves. 2 years ago someone built 30 apartments lest than .5mille away from the property and they have 75-80% occupancy already.
talking with my wife we come up with this idea, since we know construction business owners on almost all the trades and have done business with them and a person familiar with apartment building construction on the past. we would like to form a partnership with couple of them where they can own part of the business in exchange of their work (trade) and if any one wants to be more involve and want to put hard money their % would be more.
do you think it can be done any legal issues?
any ideas or input would be appreciated
thanks in advance
They may very well welcome your expertise and partnering offer. Spell out all details and have a real estate attorney formalize.
@Javier Silva Building on "spec" is definitely risky and requires a certain mind set. What you want to do is find others willing to split the risk with you. However; no matter how you slice it, you are the ones taking the biggest risk. Here's some of the questions I have.
- If you own the land F/C, what is the value?
- Who would be responsible for obtaining the construction loan?
- Would all the partners be guarantors?
- What are the costs for the loan?
- Who pays for the design, engineering, permits, etc., or will it come out of construction loan?
- What exactly would the subs be investing? Are you talking about them getting value for their labor and that's what their investment would be? Where does the money for materials come from, would they need to buy them and that would go towards their investment?
Once you have a grasp of ALL of the costs involved, values of property, labor, etc. you have to determine how to balance it out so that each partner has the correct percentage of the project in relation to their investment. Everything on a project has value, and the trick is determining the true value based on bids, etc.
Honestly these types of deals are tough to do, and maybe a lot riskier than doing the deal yourself.
Finding an experienced developer to partner with might make more sense. Maybe @John Blackman and their team would be interested. I don't know how far you are apart geographically.
Another option may be to take it to the point of permits, and then sell to another developer and make a profit off it that way. You won't make as much, but less risk. On the other hand if you're wanting to hold the property, that won't work.
thanks Katty and karen for your comments.
yes Karen we know that we would be the ones taking the highest risk
we are going to start putting everything together to see if is feasible.
to answer some of your question.
* the land is valued at 450.
*the construction loan would be obtain by us (owner company)
*I think we could be the guarantors since we already have the relation with the bank but also we would have to talk to the attorney about this topic.
*im not sure of the cost of the loan we have a budget price on 3M.
the plans with the engineering stamp are ready to be submitted to the city.
* i think that every investor would have to be owners of companies that are stable and willing to invest on real state (multi-family) and their investment can be just his labor and materials paid by the loan or labor and material.
Thanks for your advise.
I'd be very concerned about the fact that a 2 year old apartment building .5 miles away is only 75-80% full. Of course there could be extenuating circumstances, but it sounds like the market won't support more apartments.