Help getting the ball rolling for apartment deal

[Morgan Wallace]

Hey BP, I need some guidance on first steps for the following scenario:

There are several small, old single-family homes located in a great location for a moderate-size apartment complex. I want to buy half of a block (5 houses) with a good street front, demo all the SFHs, re-zone the land, then build my 75-150 apartments.

I feel strongly about the rent potential here, and with some preliminary analysis, I could get cash out of the deal if I buy at market rates for these old houses, use a construction loan to build, then re-fi into a 30-year. And it has strong cash flow potential.

I’m also confident in coming up with the cash requirements for 20% on my project through a good network of friends and family.

I assume my starting point is to get a letter of intent (LOI) from a bank, recruit my investors, then recruit my sellers. Is this correct?

What do you think I'll need for my LOI? Preliminary architectural drawings and an few estimates from builders to include in my business plan? A thumbs-up from the city?

Executing this deal seems more straightforward than launching it.

Thanks for your thoughts!

[Greg Dickerson]

@Morgan Wallace this sounds like a great plan and you obviously have vision and passion. 

There is a whole lot that goes in to a project like this. You need significant experience and a lot of capital to bring a project like this to the finish line. 

You really need to start with either hiring a consultant or bringing on a sophisticated and experienced partner. 

First steps would be to put together a financial model to make sure the numbers will work. If the project looks feasible you would then proceed to getting an option to purchase all the properties contingent on getting all of the approvals and density your looking for. Once you get all the properties under option you are ready to start working on site plan, building plans and cost estimates. Main thing is you do not want to close on any property until you get all of the entitlements. 

Once you have the entitlements you can start the final bidding process, fund raising and financing stage. Once the funding is in place you can then proceed to closing and break ground. This is likely a 3 year cycle to get the zoning, permits, financing, complete construction and lease up.

This is just a brief summary to give you an idea of the process and as I opened with there is a whole lot more to the process.