Raising Money for a new devlopment

6 Replies

Hey so i have posted about 2 or 3 months ago about getting into the devlopment side of real estate with my father, we where looking to devlop a small to medium size luxury complex in NYC (where we live) but raising money has seem next to impossible. I am not going to lie i kind of have no direction what so ever on how to raise or obtain the money for a project like this, so we decided to start off on a much smaller scale and start with single family home since it will require a lot less money. The thing is i am trying to research and learn how to raise money, i have reached out to numerous major Developers in NYC who all speailize in the projects we are eventually trying to get into, but either never get response or they agree to meet and then cancel on me.

what i have learned though is that nobodys going to give us money based just of an idea, people who are serious about giving money want to see exact projects and numbers, so they can perform their own due dilligence and see if the numbers work and the deal is actually capeable (which i understand completley) but the problem is no major broker will entertain the thought of wasting time to find deals or show us properties to someone who does not have serious capital to purchase them.

so pretty much brokers wont find or show me properties because i dont have money, and investors wont give me money because i do not have a solid property to show them. I am so lost and have no direction and do not know where to go from here. Thats why im trying to reach out to local devlopers to ask them questions and pick their brains. Please help be honest with me I do not mind critizism or advice. This is my passion and will refuse to give up so any advice or critizism helps!

What is it you're bringing to the table?  If you're looking for a payday, you have to be bringing something to the table.  Money is always a good choice.  For a project like this (and I have an investment in a deal along these lines), you are going to have to have some of your own cash into the deal.  Typically you would find a parcel of land, acquire it (or otherwise gain control of it), and then create a development plan.  Then you would pitch the plan to potential investors.

So you'll need some money to gain control of the land and money to come up with that plan.  That might be funded by personal loans, cash, or money borrowed against some other asset.

As you're discovering, a great idea is worth very little.  Anyone can say "I want to build something on some chunk of land."  You need to be further along in the process than that to get any interest from either land owners or investors.  That usually starts with a market assessment of what sort of properties are in demand in an area.  Then, what would it cost to acquire the land and build on it.  Then you start identifying potential tracts of land you would use as a starting point.  You have to figure out regulations and agencies you're going to have to work with (often a big obstacle, my project has been tied up for years now working with cities and counties on roads, utilities, drainage and getting approvals from neighbors.)  There's a lot to making a project fly, and construction is really a very minor aspect of it.  

Are you capable of working up all these other details about the project?  Do you have cash to bring to the table?  If not, you may be trying to reach too far for now.  Start with a smaller project where you do have enough of your own cash to get the ball rolling.  Even a rehab project with a generous hard money lender is going to require significant money of your own to go into the deal.  But if you start there and start developing some experience and building up a nest egg, you'll have a better shot at moving up the food chain.

Originally posted by @Jon Holdman :

What is it you're bringing to the table?  If you're looking for a payday, you have to be bringing something to the table.  Money is always a good choice.  For a project like this (and I have an investment in a deal along these lines), you are going to have to have some of your own cash into the deal.  Typically you would find a parcel of land, acquire it (or otherwise gain control of it), and then create a development plan.  Then you would pitch the plan to potential investors.

So you'll need some money to gain control of the land and money to come up with that plan.  That might be funded by personal loans, cash, or money borrowed against some other asset.

As you're discovering, a great idea is worth very little.  Anyone can say "I want to build something on some chunk of land."  You need to be further along in the process than that to get any interest from either land owners or investors.  That usually starts with a market assessment of what sort of properties are in demand in an area.  Then, what would it cost to acquire the land and build on it.  Then you start identifying potential tracts of land you would use as a starting point.  You have to figure out regulations and agencies you're going to have to work with (often a big obstacle, my project has been tied up for years now working with cities and counties on roads, utilities, drainage and getting approvals from neighbors.)  There's a lot to making a project fly, and construction is really a very minor aspect of it.  

Are you capable of working up all these other details about the project?  Do you have cash to bring to the table?  If not, you may be trying to reach too far for now.  Start with a smaller project where you do have enough of your own cash to get the ball rolling.  Even a rehab project with a generous hard money lender is going to require significant money of your own to go into the deal.  But if you start there and start developing some experience and building up a nest egg, you'll have a better shot at moving up the food chain.

Thank you so muchf or taking the time to answer me, Money is not really what i would have to offer because I do not enough of it to be considered to piece togethor a deal like this to "have skin the game", thats why i am considerign starting on a much smaller scale on just a fix and flip until I can build up some more capital. In what i do have to offer is the development and construction side (not the investor side). My father who is my partner has over 30 years experience devloping everything from multifamily house's, apartment buildings and in the past 15 years or so all luxury hotels in NYC. He has been incharge of the whole devlopment process from start to finish from everythign from dealing with city agencies, budgeting, finding contractors and overseeing the whole constructions and devlopment process on projects like The NoMad Hotel, Crosby Street Hotel, and multiple luxury apartment buildings scattered across NYC and Downtown Brooklyn. The reason we are doing this is because my father wants to still do what he does but he wants to do it as the investor as well. He knows my love for architecture, design, and real estate and his love for constrcution and bringing a project from nothing but a thought to a real life building, we decided to team up and try to do one on our own.

That's actually a pretty good story.  Your dad's experience will count for a lot with potential investors.  And it will be invaluable in getting the process started.  

I'm far from an expert on how you would get this off the ground, so take this for what its worth.  I'd start by trying to outline a potential project.  Develop the business case and get some idea of what's going to be involved in getting all the approvals from the city, county or whatever.  That should help narrow down what you're going to build, what sort of a lot you'll need and how much its going to cost.  That should also help you build a projection of sales prices, rents or whatever your plan is for generating a return.  Then you can use that to start looking for a lot and for investors.  

I think you're going to have to come up with some non-trivial cash up front.  You'll need to get a parcel under control.  That might mean actually buying it or perhaps just an option.  You'll need to develop that plan.  Seems like your dad has the skills and knowledge, but that's likely to still require some cash.  When you want to set up the private placement to bring investors on board you'll have some serious legal costs.  In the range of $10-25K, I've been told.  This is cash you're going to need up front to get from the idea stage to a fundable project.

Also be realistic about what you're going to get.  Sometimes folks get into this thinking they are going to get investors to fund 100% or near 100% of the project, get paid for doing all the work to get the project accomplished (i.e., paid for doing architecture, planning, building, GC or whatever) and still end up with 50% equity ownership.  That's not going to happen.  If you're wanting this to be a job (i.e., you collect a paycheck while doing the project), and investors are putting up all the cash, you're going to get, at most, a small slice of equity.  OTOH, if you're willing to contribute your labors without payment, that might earn you a slice of the equity.

Consider a simple fix and flip with a money partner.  The partner puts up 100% of the cash.  You do or get done all the work.  When you buy materials or pay a contractor for their labor, that's a cost to the project.  You, OTOH, do not collect a penny as the project is happening.  At the end, after all the costs are subtracted, the typical profit split would be 50/50 for you and the partner.   Its your labor that earns you 50%.

If you build $2 million project on similar terms, your split is going to be a lot less than 50%.  That's because your labor into that $2 million project is a much smaller percentage of the overall project.  If you put in cash or something else of value (i.e., the land) then that would get you the same percentage as anyone else who puts in that amount of cash.

Raising the money is the hardest part of any development project for most folks. You need a sparking track record to raise money. Nobody is going to invest in a hope and a dream. My best advice is to try to find a JV partner that will demand control of the project while you utilize your father's skillset to develop your brand and track record. From there you can work on finding new investors and controlling projects on your own.

Originally posted by @Bryan Hancock :

Raising the money is the hardest part of any development project for most folks. You need a sparking track record to raise money. Nobody is going to invest in a hope and a dream. My best advice is to try to find a JV partner that will demand control of the project while you utilize your father's skillset to develop your brand and track record. From there you can work on finding new investors and controlling projects on your own.

yea i think that might be my best bet, i have structured a portfolio (kind of like a resume) of all my fathers devlopment projects with specifications of Total Budget, actual budget used, time frame, accomplishments and before and after pictures of a lot of the major properties he has overseen and developed. And i will try and leverage that to try and form a JV with someone who will hopefully be willing to fund the deal with us. But my direction is so lost i dont even know where to look to get that. The more i read all theses major deelopers use private equity firms and hedge funds to fund their development deals, but at that level they are institutional investors and near impossible for me to go that route. What would i post on Craisgliost and BizBuy and sites like that kind of pitching our idea and what we have to offer

"My father who is my partner has over 30 years experience devloping everything from multifamily house's, apartment buildings and in the past 15 years or so all luxury hotels in NYC."

If your dad has been doing that for 30 years then he should have some cash saved up. With his experience and knowledge you should be able to put a smaller deal together. Not having any money saved up over 30 years to contribute something is a bad sign of money management usually. Not saying that is the case but if you saved 20k a year for 30 years that is 600,000 with no compounding effect at all.

I know people that make 50k a year and people that make millions. Some are savers and some are spenders. Over time the savers usually out do the spenders because of the compound effect.

Your dad with his 30 years should have an awesome network to approach people with already for funding. The big guys might not have any interest for their time.

It's like if someone is asking me to work on a 100k project with them when I am doing 5 to 10 million deals.

Biggest thing is entitlements and that is what can take years and years sometimes. Some developers will not touch anything unless it is fully entitled and ready to break ground on and the site plan is approved. There are a lot of expenses that go into development before even breaking ground with the first phase and draw of the construction loan.  

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