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Nick Hummel
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Partnering with a contractor to be able to get funding for new construction?

Nick Hummel
  • Investor
  • Asheville, NC
Posted Nov 27 2023, 22:07

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?

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Chris Seveney
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Chris Seveney
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Replied Nov 28 2023, 03:34

@Nick Hummel

I would partner with my ex wife and her family before ever partnering with a contractor.

There is an inherent conflict of interest there if their equity is tied to doing the work, they have no incentive to keep the price down.

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Stuart Udis
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Stuart Udis
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Replied Nov 28 2023, 04:01

I agree with Chris. It's very difficult to align interests when your JV partner is the contractor with limited exceptions. I am surprised a contractor with 3 complete projects worth of experience is a requirement for you to obtain funding. Typically lenders want to vet the contractor but haven't come across a partnership requirement. I would recommend searching for other lenders who offer a construction loan product. If a lender finds you to be a satisfactory guarantor, there is a sound thesis behind the project and you retain a vetted GC, you shouldn't have trouble funding a project but you have to be able to satisfy these three requirements.

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Nick Hummel
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Nick Hummel
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Replied Nov 28 2023, 14:43

Thanks guys, I guess I was thinking about it the wrong way. I wouldn't need a contractor partner, just an investor partner that has done new build projects before. But all the lenders I've seen so far require at least 3 new build projects as experience so if you know any lenders that have lower requirements let me know.

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Robert Ellis
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Robert Ellis
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Replied Nov 28 2023, 17:25
Quote from @Nick Hummel:

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?


 if you want to do one in columbus ohio let me know we post opportunities all the time in marketplace. doing 17 new builds next year 

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Nick Hummel
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Nick Hummel
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Replied Nov 29 2023, 00:53
Quote from @Robert Ellis:
Quote from @Nick Hummel:

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?


 if you want to do one in columbus ohio let me know we post opportunities all the time in marketplace. doing 17 new builds next year 


 Very nice, we're in Asheville, NC but if you're open to being a partner on paper we can give you a cut of the equity. Looking to do build to short term rental.

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Nick Belsky
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Nick Belsky
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Replied Nov 29 2023, 04:01

@Nick Hummel

There are a few lenders who will do GUC with no experience but their UW process is grueling to say the least.  Very expensive and cumbersome to process, in my opinion.

Contracting with an experienced builder is a better way to help get you better leverage and terms.  Although, still won't be as good as if you have the required experience yourself, you can get most of the way there. There are a few lenders that will allow the loan to be based on the builder's experience in conjunction with your own.  There are different leverage tiers based on that combined experience but they are not unreasonable given the current market.  Some lenders have discontinued GUC programs all together whereas others are being fairly aggressive on terms right now.  

I'd recommend speaking with a broker who knows GUC and has solid resources with GUC lenders.  They can help take a lot of the guesswork out of this for you.

Cheers!

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Austin Steed
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Austin Steed
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Replied Nov 29 2023, 06:47
Quote from @Nick Hummel:

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?


 The largest development I've done we didn't have to partner with the GC but the bank did underwrite them. Reviewed taxes, liquid funds this kind of thing. This was on an 11 unit property in Columbus and construction loan was 1.1M. 

I personally wouldn't partner with a GC, unless I knew someone very well and even then wouldn't be likely. I would recommend trying to build more relationships with bankers. More community banks that will do construction loans on a portfolio loan. Hard money lenders probably won't underwrite a GC too extensively or at all but you'll get beat up on points and rate. 

If going the build to rent route your ideal scenario would be to get a construction loan that rolls into perm financing once complete. Only one closing and no surprises if rates change again at all. 

Don't forget to add development fee with bank to your business. Will help your CoC returns.

Best of luck!

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Mitch Davidson
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Mitch Davidson
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Replied Nov 29 2023, 07:57
Quote from @Nick Hummel:

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?

@Nick Hummel We may have someone in or connected to our Asheville BP community that might be interested. We have a casual meetup at Hi-Wire's RAD location tonight at 6PM if you want to join us. 

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Mike Klarman
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Mike Klarman
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Replied Nov 29 2023, 08:12

The Ground Up programs are the tougher to get into than the Free Masons.  Here's the catch with those programs:

1) Getting in the program as a 0 exp in GUC is impossible

2) Even when partnering with a builder, that builder will only get credit for the builds he's done for himself.  If he has done 50 new builds for clients he gets 0 exp for that.  Kinda crazy, but that's how it works.

3) The loans themselves have a nightmarish processing period.  Everything but your blood type will be asked for, the builder will need to have their house in order and be in good standing as well.  Plans and drawings and specs will be asked for.

4) The ground will need to be build ready in most cases.  Most will only fund on the vertical build.  All that underground work that is needed may fall on you.  

5) In most cases, usually the investor buys the land and gets it build ready and then they go to the lender with plans on the build.  The lender will then cash you out 50% - 60% of the raw land value but the vertical build money goes into escrow and works much like a rehab fund.  You complete work, you apply for a draw, funds are released.

It's almost like lots of lenders who have GUC programs are telling you that you need to get a few done in cash first and prove you know to get these done and are in bed with the right builder and then they will look at your deals.

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Dallas Sauer
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Dallas Sauer
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Replied Nov 30 2023, 05:37
Quote from @Mike Klarman:

The Ground Up programs are the tougher to get into than the Free Masons.  Here's the catch with those programs:

1) Getting in the program as a 0 exp in GUC is impossible

2) Even when partnering with a builder, that builder will only get credit for the builds he's done for himself.  If he has done 50 new builds for clients he gets 0 exp for that.  Kinda crazy, but that's how it works.

3) The loans themselves have a nightmarish processing period.  Everything but your blood type will be asked for, the builder will need to have their house in order and be in good standing as well.  Plans and drawings and specs will be asked for.

4) The ground will need to be build ready in most cases.  Most will only fund on the vertical build.  All that underground work that is needed may fall on you.  

5) In most cases, usually the investor buys the land and gets it build ready and then they go to the lender with plans on the build.  The lender will then cash you out 50% - 60% of the raw land value but the vertical build money goes into escrow and works much like a rehab fund.  You complete work, you apply for a draw, funds are released.

It's almost like lots of lenders who have GUC programs are telling you that you need to get a few done in cash first and prove you know to get these done and are in bed with the right builder and then they will look at your deals.


 Stay away from the banks and get a Hard Money New Construction Loan. Most of these problems will go away. 

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Dallas Sauer
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Dallas Sauer
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Replied Nov 30 2023, 05:38
Quote from @Nick Hummel:

Thanks guys, I guess I was thinking about it the wrong way. I wouldn't need a contractor partner, just an investor partner that has done new build projects before. But all the lenders I've seen so far require at least 3 new build projects as experience so if you know any lenders that have lower requirements let me know.


 You should be able to get a loan with your 1 experience in new builds. It just may be at a lower LTC. 

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Mike Klarman
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Mike Klarman
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Replied Nov 30 2023, 06:04

Most Reputable HML that I know of require at least 2 like builds. I'm sure there are programs floating around out there that will do a 1 or maybe a 0, I have never closed a GUC deal. Been involved in two of them and both fell apart during the process.

I'm not saying it is impossible, nothing is.  But it will take time to find the right lender and I'm sure they will have a laundry list of conditions that need be satisfied.  Lenders shrink the box up pretty good in their bottom bucket GUC programs.

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Dallas Sauer
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Dallas Sauer
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Replied Nov 30 2023, 08:35
Quote from @Mike Klarman:

Most Reputable HML that I know of require at least 2 like builds. I'm sure there are programs floating around out there that will do a 1 or maybe a 0, I have never closed a GUC deal. Been involved in two of them and both fell apart during the process.

I'm not saying it is impossible, nothing is.  But it will take time to find the right lender and I'm sure they will have a laundry list of conditions that need be satisfied.  Lenders shrink the box up pretty good in their bottom bucket GUC programs.


With partnership experience including one past new build (assuming similar location and costs) and a past flip. We would require the budget come from a licensed contractor and be approved by us but it wouldn't be hard to fund. Zero experience is the only time we would want to add the GC or an experienced partner to the actual deal.

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Nick Hummel
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Nick Hummel
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Replied Dec 1 2023, 13:29
Quote from @Mitch Davidson:
Quote from @Nick Hummel:

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?

@Nick Hummel We may have someone in or connected to our Asheville BP community that might be interested. We have a casual meetup at Hi-Wire's RAD location tonight at 6PM if you want to join us. 


 Awesome, is that every week?

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Nick Hummel
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Nick Hummel
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Replied Dec 1 2023, 13:31
Quote from @Dallas Sauer:
Quote from @Mike Klarman:

Most Reputable HML that I know of require at least 2 like builds. I'm sure there are programs floating around out there that will do a 1 or maybe a 0, I have never closed a GUC deal. Been involved in two of them and both fell apart during the process.

I'm not saying it is impossible, nothing is.  But it will take time to find the right lender and I'm sure they will have a laundry list of conditions that need be satisfied.  Lenders shrink the box up pretty good in their bottom bucket GUC programs.


With partnership experience including one past new build (assuming similar location and costs) and a past flip. We would require the budget come from a licensed contractor and be approved by us but it wouldn't be hard to fund. Zero experience is the only time we would want to add the GC or an experienced partner to the actual deal.


Great, so if the budget came from a GC would I still be able to act as the GC on the build? Do you have a website or email I could apply through?

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Mitch Davidson
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Mitch Davidson
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Replied Dec 2 2023, 06:27
Quote from @Nick Hummel:
Quote from @Mitch Davidson:
Quote from @Nick Hummel:

I want to do a build to rent project but the only way to get funding is to partner with someone who has done more than 3 new builds. I've personally only done 1 so far and my partner has done 1 renovation project.

Has anyone partnered with a contractor before to be able to do this?

@Nick Hummel We may have someone in or connected to our Asheville BP community that might be interested. We have a casual meetup at Hi-Wire's RAD location tonight at 6PM if you want to join us. 


 Awesome, is that every week?

Hi Nick. We meet the 3rd Wednesday of the month (6PM at Hi-Wire's River Arts location) and the 4th Wednesday of the month (9AM at The Rhu, upstairs). The schedule was different for November due to Thanksgiving. This month we'll meet on the 20th and 27th. No need to RSVP. It's a casual group. We start off with some intros and questions and then have some great organic discussions about a variety of RE topics, strategies, questions, problems, etc.

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Mike Klarman
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Replied Dec 4 2023, 09:50

What do the numbers of your deal look like?

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Jeffrey Stasz
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Replied Dec 12 2023, 13:46

@Nick Hummel 

you need to check with your building department. NC is a NASCLA state and build to rent is typically treated as a commercial project. So unless you already have a Commercial License you will not be able to pull the permit for this project. 

And if you plan on pulling it as an owner most NASCLA states have a 2-5 year period where the property cannot be rented or sold. This information is typically recorded on the title.