Multiple lots development in San Jose: anticipated 30% return in 1.5 years. Your gut feeling?

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Multiple lots development in San Jose: anticipated 30% return in 1.5 years. Your gut feeling?

Nhi Nguyen
Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes

Greetings everyone.

As some of you know, I'm building a new house in San Jose, documented here: http://www.biggerpockets.com/forums/522/topics/154... , which scheduled to be finished in a couple of months.  So I'm itching to look for a similar project.

I'm really passionate about spec homes and major addition projects in better neighborhoods in the Bay Area ($300+/sqft).  That's why on my hunt for projects to line up after I finish the current, my cousin (broker) introduced me to the following.  

I've been reading on this sub-forum that some of you been suggesting to keep the return at least 20% to make sure it's worth the time & effort.  Please give inputs/advice on this deal.

+ High overview numbers:

- Land acquisition: ~$2M

- Soft cost: $600k

- Construction cost: $2M-$2.25M

- Sale price: $7.2M

- Closing costs: $850K

- Net return: $6.35M - ($4.6M-$4.85M) = $1.75M-$1.5M

==> %of return: ~30-35%

His office wants to structure as follow, roughly:

+ Partnership structure:

- Broker firm (owner of project): up to 50%

- Max 6 partners, preferably less

- Min to enter: $500K

- Min for project to start: $1.5M from partners other than the broker firm.

I would be both investing and building the project to have my skin in the game.  It's a 6 units subdivision that has all plans approved waiting for permits to be pulled (I'll verify with the building department this week).

So, those who have a better sense of market condition in the next year or so for Bay Area - Silicon Valley: what's your gut feeling about this project?

Anything I should check/know in term of paperwork, legal documents, structure of the partnership, etc...  ?  

I'm talking to some of my clients to see if they're interested in joining.  So I'd like to arm myself with as much knowledge as possible before asking.

Thank you.

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Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
11y

Nhi,

Sounds like a good and fun project.  You shouldn't have any issues selling new construction at $500/sq.ft. in Evergreen or some other decent parts of San Jose.  

@J. Martin mentioned above, I'm a vivid student of economic and history.  What's the point of building a real estate empire only to lose it all?  Knowing when to hold and when to fold will help you win half of the battle.  

As I posted on here before, at the top of the market in 1989, the housing affordability index (HAI) hit 13% for our Santa Clara County.

At the bottom in 1994, the HAI reached 45%.

At the top in 2007, the HAI hit 11%. (Note:  Loose lending drove it this high)

At the bottom in 2011, the HAI reached 56%.

We are currently at 19% HAI.  We are definitely closer to the top than the bottom.  The good thing is that the housing inventory is only about 1.5 months, and we have some good wage inflation in the Tech Industry.  I have to agree with @Johnson H. that there's a high probability that the market will stay relatively flat to single digit movement in the near future.  

Looks like things are still humming in the SFBA so the market should stay healthy in the next few years.  However, it's much more fun to sell in 2005 then 2007.  When the market tanks, be sure you have staying power if you don't get out in time.

Here is a summary of Bruce Norris' 3rd quarter newsletter.  Many CA investors consider Bruce is the Oracle of Real Estate.  Here is the recap of what Bruce learned in 2014.

1. 2014 was unlike any year California has ever had.

2. We can have declining sales in the same year that we have affordability over 30%, declining interest rates, improving employment, a decline in foreclosures, a decline in short sales, a decline in delinquencies, and a decline in negative equity.

3. He has to re-examine his future expectations about what's about to happen in 2015 and get to the bottom of what happened in 2014.

We can't ignore what happened in 2014. It happened despite some very positive forces and defied history! IT'S A BIG DEAL. His question is if we can have a lousy 2014 after a great 2013, what guarantee do we have that 2015 will be any different?

There are a few very bright people who expect 2015 to range from bad to awful. Bruce is going to take a serious look at all of this in the next 90 days and report his finding in the January 2015 newsletter. The title will be: 2015 Proceed With Caution! We may well be in uncharted territory so be careful!

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  • Peter K.
    Investor · San Jose, CA · Member since 2013 · 115 posts · 76 votes
    11y

    Forgot to mention that Bruce Norris is going to be giving his economic outlook at @geraldine berry's SJREI event in Sunnyvale on Thursday, tomorrow.  I've heard very good things about Bruce and that his predications are usually pretty accurate.  

    I'll be there.  Come find me if you make it out. 

    Peter

    2Reply
  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    11y
    Originally posted by @Johnson H.:

    No problem! Once you hear of the details, it would be great if you could post those as well. I always enjoy hearing how others put together their partnerships. My day job is to criticize, find faults, and point out risks so I am happy to help you where I can. My best advice for you is to think up the worst possible situations and ask how the partnership will handle it and have it written out. I'm sure you've had a lot of demanding customers in your business as a contractor so you probably have a few situations thought up already!

     I found out I have to go back to work after the Summit Johnson!!! They're sending me to DC for big bank school, then need to buy a new suit to start with the big boys in the FiDi.. Back to criticizing, finding faults, and pointing out the risks of others' deals! lol

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  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @J. Martin:
    Originally posted by @Johnson H.:

    No problem! Once you hear of the details, it would be great if you could post those as well. I always enjoy hearing how others put together their partnerships. My day job is to criticize, find faults, and point out risks so I am happy to help you where I can. My best advice for you is to think up the worst possible situations and ask how the partnership will handle it and have it written out. I'm sure you've had a lot of demanding customers in your business as a contractor so you probably have a few situations thought up already!

     I found out I have to go back to work after the Summit Johnson!!! They're sending me to DC for big bank school, then need to buy a new suit to start with the big boys in the FiDi.. Back to criticizing, finding faults, and pointing out the risks of others' deals! lol

     Dude! So no more time off until 5/31???

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
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    @Johnson H. ,

    I still have a bunch of time off through the end of the year, but I got pushback due to some internal political stuff unrelated to me on the long-term request.. I was disappointed, but I understand..

    I'll live. Still nice having the w2, and I'll have a "prestigious" Examiner in Charge title at a $50B bank. Would do wonders for my resume if that's the route I was going!! Why don't you a take a haircut and come do it for me and build a bunch of clout, then jump back into FRB or FDIC in the big bank program making the big bucks and flying to NYC every other week!? Make $200K and have no time! lol

    1Reply
  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

     Congrats J. You only work ... temporary to save more and invest full time again right?  Hehehe

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  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    Thanks @Account Closed : I was talking about the ROI. Invest in $4.6-$5M, get net of $1.5M-$1.75M. This is net, after all costs deductions of course. :) In the cost calculation projection chart, it's all detailed out. I might get crossed up on the terminologies. If I do, my apology. :) By the way Peter, I like what I saw on your profile's list of 2014 projects. Great profile.

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    11y
    Originally posted by @Nhi Nguyen:
    Originally posted by @J. Martin:

     I found out I have to go back to work after the Summit Johnson!!! They're sending me to DC for big bank school, then need to buy a new suit to start with the big boys in the FiDi.. Back to criticizing, finding faults, and pointing out the risks of others' deals! lol

     Congrats J. You only work ... temporary to save more and invest full time again right?  Hehehe

     It won't kill me to keep the w2 stub.. And the new assignment is a great job for the industry. But like so many here on BP, that's just not my dream. And I think I'd be making  a lot more in net worth over the long run if I were spending my time finding real estate deals... Maybe I'll just do one more good one with the salary..  ;)

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  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    Okay, I got some fairly good news from my meeting with the broker today.  I wrote down and asked all the questions suggested here.  :)

    - Finance: the broker would take care of that by himself as portion of his investment.  He would one way or the other get enough fund to cover the rest up to 50% of the total cost.  He would rather have some other investors stepping up by investing more though.

    - All partners have a saying on key issues.  Monthly meeting for status reports would be scheduled for all partners at his office in SJ or by call in.  Partners can always drop by job-site and/or ask questions.

    - Project management makes daily decisions based on agreed-upon master plan.  Important issues are raised at meetings for opinions and final decisions.

    - It's a partnership, so P&L are spreaded according to invested percentage.

    - Minimum share is $500K, but I got special treat :).  Friends of mine could go in at lower numbers, as long as my group add up to $500k or more.  We're friends, right PBers? :)

    - Insurance will be in place

    - Only 6 homes, so they all would be built at the same time.  As soon as possible, marketing will kick in to presell.  My cousin owns a TV station in this area so that's a big plus.

    - This is in the best part of San Jose, with very desirable schools.  So again, the comps look very good.  

    That's it for now.  

    @Johnson H. @Account Closed 

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  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @J. Martin:

    @Johnson H. ,

    I still have a bunch of time off through the end of the year, but I got pushback due to some internal political stuff unrelated to me on the long-term request.. I was disappointed, but I understand..

    I'll live. Still nice having the w2, and I'll have a "prestigious" Examiner in Charge title at a $50B bank. Would do wonders for my resume if that's the route I was going!! Why don't you a take a haircut and come do it for me and build a bunch of clout, then jump back into FRB or FDIC in the big bank program making the big bucks and flying to NYC every other week!? Make $200K and have no time! lol

     Funny you say that, I had a recruiter offering me a job traveling to NYC every week! I thought about it overnight before I declined it. I am not young anymore haha

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  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    yeah me neither. I love traveling, just not on business trips. :)

    1Reply
  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @Nhi Nguyen:

    Okay, I got some fairly good news from my meeting with the broker today.  I wrote down and asked all the questions suggested here.  :)

    - Finance: the broker would take care of that by himself as portion of his investment.  He would one way or the other get enough fund to cover the rest up to 50% of the total cost.  He would rather have some other investors stepping up by investing more though.

    - All partners have a saying on key issues.  Monthly meeting for status reports would be scheduled for all partners at his office in SJ or by call in.  Partners can always drop by job-site and/or ask questions.

    - Project management makes daily decisions based on agreed-upon master plan.  Important issues are raised at meetings for opinions and final decisions.

    - It's a partnership, so P&L are spreaded according to invested percentage.

    - Minimum share is $500K, but I got special treat :).  Friends of mine could go in at lower numbers, as long as my group add up to $500k or more.  We're friends, right PBers? :)

    - Insurance will be in place

    - Only 6 homes, so they all would be built at the same time.  As soon as possible, marketing will kick in to presell.  My cousin owns a TV station in this area so that's a big plus.

    - This is in the best part of San Jose, with very desirable schools.  So again, the comps look very good.  

    That's it for now.  

    @Johnson H. @Account Closed 

     Thanks for the update. So do you feel comfortable going forward with this venture?

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    11y
    Originally posted by @Johnson H.:
    Originally posted by @J. Martin:

    @Johnson H. ,

    I still have a bunch of time off through the end of the year, but I got pushback due to some internal political stuff unrelated to me on the long-term request.. I was disappointed, but I understand..

    I'll live. Still nice having the w2, and I'll have a "prestigious" Examiner in Charge title at a $50B bank. Would do wonders for my resume if that's the route I was going!! Why don't you a take a haircut and come do it for me and build a bunch of clout, then jump back into FRB or FDIC in the big bank program making the big bucks and flying to NYC every other week!? Make $200K and have no time! lol

     Funny you say that, I had a recruiter offering me a job traveling to NYC every week! I thought about it overnight before I declined it. I am not young anymore haha

     There are ALWAYS travel jobs available in finance/banking/RE, but it gets SO old SO quick. I don't have to tell you. You travel a lot more than I do. @Nhi Nguyen , I'm totally with you. Love traveling. Used to enjoy the business travel too when I started. Seeing new cities, going out at night.. But you can only see so much in the evening stuck in a downtown conference type setting, especially w/ no free time on the ends.

    I need a few months off to do some real traveling..

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  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    speaking of which, @J. Martin , we haven't had a plan for this year vacation yet. Been busy with all these houses after houses. 

    BTW, anyone into boating?  I'm into cruise boat. 

    Sorry we get side tracked into fun stuffs. But that's what RE investment is all about right?  To have the mean to enjoy life & family better! :)

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  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    @Johnson H. : I definitely am. Pretty pumped up right now. 

    My head is spinning around on how to get my funding lined up. Just talked to my HML and she might let me access some $$$ at much lower rate in trade of getting her in one spot. I'll see how's that played out.

    On the other hand, I need to push the broker into getting things straight out in term of game plan, partnership structure paperwork, getting enough partners on board, getting loans etc..., so things can move forward quickly. Also for me to have a good complete document package for my friend circle to look at. 

    It seems like a busy weekends/week ahead. :)

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  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @Nhi Nguyen:

    speaking of which, @J. Martin , we haven't had a plan for this year vacation yet. Been busy with all these houses after houses. 

    BTW, anyone into boating?  I'm into cruise boat. 

    Sorry we get side tracked into fun stuffs. But that's what RE investment is all about right?  To have the mean to enjoy life & family better! :)

     Like J said, I travel up to 70% of the time for work in the US but I also travel out of the country at least once a year. For cruises, I have been on Oasis of the Seas, the largest cruise ship in the world for a 7 day cruise in the Caribbean. I have also taken cruises to Alaska, Mexico and a cruise on the Yellow River in China. Let me know if you want to compare notes!

    1Reply
  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @Nhi Nguyen:

    @Johnson H. : I definitely am. Pretty pumped up right now. 

    My head is spinning around on how to get my funding lined up. Just talked to my HML and she might let me access some $$$ at much lower rate in trade of getting her in one spot. I'll see how's that played out.

    On the other hand, I need to push the broker into getting things straight out in term of game plan, partnership structure paperwork, getting enough partners on board, getting loans etc..., so things can move forward quickly. Also for me to have a good complete document package for my friend circle to look at. 

    It seems like a busy weekends/week ahead. :)

    BP is a great place to raise money if you need more funds. I have raised close to a million dollars but did not end up using it as I did not get the property under contract. If you have a marketing package and proforma, lots of people at the meetup would be willing to look at it. If you can build trust with others, it should be no problem. Building trust sounds easy, but it is very hard to do. Keep us in the loop Nhi, I am very excited for you as well!

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    11y
    Originally posted by @Johnson H.:
    Originally posted by @Nhi Nguyen:

    @Johnson H. : I definitely am. Pretty pumped up right now. 

    My head is spinning around on how to get my funding lined up. Just talked to my HML and she might let me access some $$$ at much lower rate in trade of getting her in one spot. I'll see how's that played out.

    On the other hand, I need to push the broker into getting things straight out in term of game plan, partnership structure paperwork, getting enough partners on board, getting loans etc..., so things can move forward quickly. Also for me to have a good complete document package for my friend circle to look at. 

    It seems like a busy weekends/week ahead. :)

    BP is a great place to raise money if you need more funds. I have raised close to a million dollars but did not end up using it as I did not get the property under contract. If you have a marketing package and proforma, lots of people at the meetup would be willing to look at it. If you can build trust with others, it should be no problem. Building trust sounds easy, but it is very hard to do. Keep us in the loop Nhi, I am very excited for you as well!

     I agree with Johnson all this.. I would add that it's nice to build the relationships ahead of time, like Johnson has, and it makes the capital raising a lot easier when you find a deal.

    "The best time to plant a tree was 20 years ago. The next best time is today!" (and there's actually a meetup today! lol) Thanks Johnson!

    1Reply
  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    Thanks @Johnson H. & @J. Martin for the tips.  I do value the networking power, and see people do deals all over BP.

    Specially thanks to J for raising the question about the basic partnership structure last night @ Johnson's meet-up.

    I'd like to clarify it one more time:

    1) First of all, I'm not the owner of the project, the broker firm which my cousin (also a broker) is a partner of is.  So what I presented here so far is just the progress of my due diligence to find out (by asking questions here, do some research on my own, ask the firm questions, etc...) if the investment is worth my time, effort, & hard earned capital.  :)

    2) Having said that, here's what I think the 2 scenarios which I still have to find out next week in term of how they plan to operate:

    a) Total cost of the project: $4.6M to $4.85M with all cash from partners, no construction loan to the partnership at all: sale price $7.2M, closing cost $850k, ROI = $7.2 - $850k - ($4.6M to $4.85M) = $1.5M to $1.75M, so % of ROI: ~30.1% to 38%.

    b) Same basic cost of project.  But all partners can only come up with X% of the total cost, let say 50%, the rest would be on a construction loan of say ... 12%.  And project takes 1 year.  Number would be something like: 

    - sale price: $7.2M 

    - closing cost: $850k

    - holding cost (loan fee): $276k to $291k (50% of $4.6M to $4.85M)

    - Land acquisition, soft cost, & construction cost: $4.6M to $4.85M

    - ROI = $7.2M - $850k - ($276k to $291k) - ($4.6M to $4.85M) = $1.474M to $1.209M

    - % of ROI ==> If total cost of build is $4.6M: $1.474M/($2.3M+$276k) = 57%

    - % of ROI ==> If total cost of build is $4.85M: $1.209M/($2.425M+$291k) = 44.5%

    So, if the partnership can get a construction loan then the number is very good actually.  It's my rough calculation layman way.  If anyone sees it otherwise, please advice.  But wow, I hope it's correct!!! :)

    So far my HML verbally agreed to put $500K in. I'm still no where near that yet, haha. So I'll have another meeting with the firm to ask more questions about how much money they plan to put in themselves, how many more spot are open, and how they go about construction loan.

    Question: How easy it is to get construction loan on partnership nowadays? What's the LTV & rate?

    If they say they gonna get construction loan (based on my calculation above, it seems to be a much better choice), how do we make sure the partnership gets the loan, vs just got stuck with a piece of land and deadlock investment money in the partnership?

    Thanks in advance and hope everyone has a good plan for the week ahead. 

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
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    @Nhi Nguyen ,

    Yes, there are construction loans available. Lots of lenders are looking to keep up their loan balances and get better yields, so you can get a construction loan at a bank if you keep a low LTV, and especially if you have a strong guarantor. You should be able to get this somewhere from 5-7% if you're willing to work with a bank. They will want more information, maybe more detailed plans, inspections, and draws, but are the cheapest rate. 50% LTV should not be any problem, but above that will depend more on your guarantor, maybe up to the lesser of 60% or 65% Loan to (total) cost, and 70-75% of the loan to value (ARV).

    If you don't have a strong guarantor, you should still be able to do a 50% LTC construction loan with a private lender for around 10% APR, depending on terms and points, and they shouldn't be too picky about the guarantor at that LTV. They'll want a 1st position lien.

    I haven't looked through your numbers, but yes, the construction loan should increase the ROI significantly. That's why I was confused the first time you put up the numbers making it seem like all cash.. That's a lot of equity to share the profits with.

    Any time equity return rate is higher than the borrowing rate, you should increase your ROI by increasing leverage if all goes as planned. So it's not surprising to see the numbers improve a lot when increasing leverage on this kind of spread. Of course, this adds risk if something goes wrong also, unless the partners have the cash on hand to make it up..

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  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    All solid points @J. Martin and I agree.  I know the more cash we invest in the deal, the less stress/risk it would be.  

    But if they can only raise so much, construction loan is a must. So I'd still like to come back to my question: Should the broker (or anyone else for that matters) get any % of equity at all just for his/her effort of going out and guarantee a construction loan on the lot for the development?   If so, how much?

    Thanks again.

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
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    I can't tell you an exact number,

    but if:

    a) The guarantor/broker is bringing a lot of personal financial strength that allows you to GET a construction loan you would not be able to otherwise get, then MORE. Especially if it's saving the partnership a lot on interest, I don't think it's unreasonable for him to accrue some portion of that benefit for bringing it to the table.

    b) If the guarantor/broker I not bringing a lot of personal financial strength and you could get the construction loan anyway with a low LTV, then MUCH LESS. Because it's not adding much marginally to the project.

    2Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
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    Nhi,

    In general, when you leverage, the CCR is typically higher since the cost of borrowing is cheap. For you to attract short-term investors, my guess is at least 40% CCR over 2 years.

    I just got back from a Symposium putting together by Marcus & Millichap.  According to them, banks are doing 55% loan-to-equity (LTE) for new construction now.  At the bottom of the cycle, they were doing 40% LTE.  Towards the end of the cycle, it might go up to 65%-70% LTE.  The general consensus is that we will have 3-5 more years of economic growth with 3%-5% appreciation in 2015.

    With that said, if investors are bringing in 50% equity, and the broker is guaranteeing 50% loan, I'm not sure he should be compensated that much.  Syndicators are charging 2.5% - 5% for their syndication fee, and they are the guarantor of the loan.  I always like to see the broker's interest aligned with the investors.  At 2.5% commission on listing fee, the broker is making $180k on $7.2M exit value.  Is that enough to be a loan guarantor?  How about 3% listing fee or $216k?

    I'm sure you shouldn't have any problem finding a loan guarantor for a $2.5M construction loan provided that you give him/her all the listings.  Hint hint!!!

    4Reply
  • Nhi Nguyen
    OP
    Contractor / Flipper · Hayward, CA · Member since 2014 · 195 posts · 86 votes
    11y

    Thanks @J. Martin on the inputs.

    I'm having a meeting with the broker today @1:30 (we postponed yesterday meeting) so some of the concerns should be cleared.  But this is what I think:

    - Since he's the owner of the project, and a broker too, the listings are automatically his.  It doesn't make a lot of sense otherwise for him.

    - He mentioned about a 3% project management fee.  I haven't had a chance to ask him in details what it entails.  But I guess portion of it would probably be the same of that syndication fee Minh was talking about; and also for his effort to manage the whole process.

    - Other than that, I think he would have to invest some of his own money in to get his share of the return.

    1Reply
  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
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    Originally posted by @Nhi Nguyen:

    Thanks @J. Martin & @Account Closed on the inputs.

    I'm having a meeting with the broker today @1:30 (we postponed yesterday meeting) so some of the concerns should be cleared.  But this is what I think:

    - Since he's the owner of the project, and a broker too, the listings are automatically his.  It doesn't make a lot of sense otherwise for him.

    - He mentioned about a 3% project management fee.  I haven't had a chance to ask him in details what it entails.  But I guess portion of it would probably be the same of that syndication fee Minh was talking about; and also for his effort to manage the whole process.

    - Other than that, I think he would have to invest some of his own money in to get his share of the return.

     So a 3% management fee... is that his equity then? So w/ a 50% LTC construction loan, 3% points of the 50% equity contribution would be 6% (3%/50%)of the total equity contribution.

    So he gets 6% of the deal for free for bringing the deal. That does not sound unreasonable to me, for bringing a good deal, especially if he's handling all the logistics and paperwork, putting the deal together, etc... Then another 5%ish for the commissions on front and back (not uncommon). Are those expenses? Or are the commissions his equity contribution?

    I think that math should be right, but maybe Minh can correct me or opine on the reasonableness. It doesn't look unreasonable to me, if I understand it correctly.. 6% equity for brining a good deal and putting it together, plus the listings..

    1Reply
  • Bruce Olsen
    Lender · Pasadena, CA · Member since 2013 · 74 posts · 11 votes
    11y

    @Nhi Nguyen- can you share what happened? Thanks!

    0Reply
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