I have an old house on an exceptional lot (great street and mountain views, larger lot for area) in an area of SE Denver in which new houses can sell for more than 3M. I could probably sell for 850-900k), but realize that there is a greater profit potential. I am looking for a builder to partner with who will finance building costs (and get reasonable GC fees above cost for their efforts as well). Profits above this will be split 50-50 after the sale.
First, is this a reasonable ask?
Second - are you a builder who might be interested?
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
2y
We finance these types of deals, so from our perspective, make sure you're getting a partner...even if they are a GC...that has done similar projects before. If they have done three or four $250K deals, a jump to $3M might not go over as well when we underwrite it. One of the biggest things we look at is the experience of the operators. With respect to the "reasonablness", what do you own against the property? That value, if owned for more than 6 months, can be used as the down payment for a loan. If you can find someone with experience that brings that amount to the table and then you do a small loan for the remainder of what you need, then I think it's more than reasonable. You might not need a loan at all. Good luck to you.
Thanks for your reply Doug. Yes, all those cautions are good ideas. My plan was to work with someone who has done similar homes in the area, if possible, who might come in with pre-approved or mostly ready-to-go building plans; no sense re-inventing the wheel.
Assuming I own the land free and clear (value, say 800k) however, do you think that I could get the construction loan myself (I have about a 750 credit score) and just hire a builder to put it up, using the land as collateral for the loan? I imagine it would require between 1.1 and 1.3M? That would avoid splitting the profit.
If I did something like that, would I need to make payments along the way, or could those be folded back into the loan?
1) using "pre-approved or mostly ready-to-go building plans" sounds good but people paying $3m for a home don't want a cookie cutter so it might not be a good idea to go that route. You can use plans that have been used before but they won't be "pre-approved". Also I think Architects take a dim view of reusing their plans unless you pay them again.
2) You could just hire a builder. The challenge is a lot of the developers handle the GC function by building their team of subs that do all the work. That is where a chunk of their profits are. Most of the GCs available actually cater to the folks building their own "forever home" kind of market. They do more handholding as well as having higher profits and costs.
3) My suggestion would be to find all the homes in the area that have been built in the last 3 years as well as those under construction and find out who built them and reach out to them to see how the project was done. You might start with the agent that listed the home for sale as they typically know the players.