How should I finance a 10-unit apartment development?
Rental Property Investor · 49506 · Member since 2018 · 4 posts · 1 vote
How should I finance a 10-unit apartment development?
Most Popular Reply
Lender · CA · Member since 2018 · 637 posts · 393 votes
1yHey Adam, I would be prepared to give up most of your equity to be frank. a 2.5MM project with 150k is less than 6% of the total project in equity. The bank is going to typically finance between 65 and 75% of the cost depending on the ARV. If I was an investor financing the remaining 29% - 19%, I personally would expect my equity split to be reflective of such. I would also be analyzing you as an investor. Are you just bringing me land, do you have any experience in development? In property management? In putting together a deal? If not and I have to go out and build the team and organize the deal, I will factor that in too. So depending on your experience, if you are bringing a piece of land and some plans, I the outside investor would want likely between 80-90% of the equity if I am providing all the funds for closing, the experience, and the reserves, just to be honest on something like this. If you have the reserves and you have a ton of experience, you might be looking at keeping between 30-40% equity on your side.
Edit: And taking 10-20% equity on a deal like this with an experienced investor might be completely worthwhile and life changing to be clear. If you can JV for a seasoned developer and investor on a deal like this and make 10-20% of the upside while tagging along and learning from their experience, that education is going to be worth way more than trying to get a 50/50 split or something like that. Education and skills are worth infinitely more than just the exit on one transaction.
5 Replies
- Lender · CA · Member since 2018 · 637 posts · 393 votes1y
Hey Adam, I would be prepared to give up most of your equity to be frank. a 2.5MM project with 150k is less than 6% of the total project in equity. The bank is going to typically finance between 65 and 75% of the cost depending on the ARV. If I was an investor financing the remaining 29% - 19%, I personally would expect my equity split to be reflective of such. I would also be analyzing you as an investor. Are you just bringing me land, do you have any experience in development? In property management? In putting together a deal? If not and I have to go out and build the team and organize the deal, I will factor that in too. So depending on your experience, if you are bringing a piece of land and some plans, I the outside investor would want likely between 80-90% of the equity if I am providing all the funds for closing, the experience, and the reserves, just to be honest on something like this. If you have the reserves and you have a ton of experience, you might be looking at keeping between 30-40% equity on your side.
Edit: And taking 10-20% equity on a deal like this with an experienced investor might be completely worthwhile and life changing to be clear. If you can JV for a seasoned developer and investor on a deal like this and make 10-20% of the upside while tagging along and learning from their experience, that education is going to be worth way more than trying to get a 50/50 split or something like that. Education and skills are worth infinitely more than just the exit on one transaction.
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Adam Rogalski the only way your going to get around what @Clayton Silva wrote, is by raising funds from family & friends - either 100% of what you need or enough to keep more of the deal for your "team".
Logical Property Management4.9458 Reviews - Lender · CA · Member since 2018 · 637 posts · 393 votes1y
Quote from @Drew Sygit:
@Adam Rogalski the only way your going to get around what @Clayton Silva wrote, is by raising funds from family & friends - either 100% of what you need or enough to keep more of the deal for your "team".
Correct
- 1yKristi KandelPro MemberDeveloper · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes
Quote from @Adam Rogalski:
I am looking for creative ways to finance a small apartment development in Michigan. The total project budget is approx. $2.5M. I own the land and it is valued at $150k. Local bank financing would require an additional $350-$500k towards the down payment. What are the my options to limit bringing that money out of pocket for the down payment but also minimize the amount of equity given away on the project? Essentially, how much equity should I be prepared to split with in investor in order to not bring additional cash to the deal?
@Adam Rogalski Have you reached out to MEDC yet to see about their grant programs for building housing? I work with them throughout Michigan to help emerging developers redevelop neglected properties in their communities. You still need to get the debt and equity but once you're open / finished with construction you can get grants to reimburse you. 500K-2M is typical for projects like yours. I run a local developer course if you were interested in learning more about development. You can always shoot me a DM. We'll be releasing our next accelerator course in Dec starting in January.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.