Crowd Funded New Construction Diary

85 Replies

We aimed at $225/sqft at the beginning of the project, and the market looks like it may support $250/sqft at this point.  The listing price on each is $439,900 at 1750 sqft each with garages.

Originally posted by @John Blackman :

We aimed at $225/sqft at the beginning of the project, and the market looks like it may support $250/sqft at this point.  The listing price on each is $439,900 at 1750 sqft each with garages.

 Pretty much exactly what we did on 1603 Sanchez. 

@Jay Hinrichs Our total cost basis is about $650,000, so if we hit our numbers we will clear around $140,000 on the transaction which will generate a return to our investors of about 17% in 16 months. We do have a 10% annual pref in the deal, so investors get 10% annualized first, but in this case we are still beating that pref.  So we won't hit our target 18% annualized, but we will beat the pref.

Even though the deal took longer than we liked, the investors were protected, we exposed the risks up front, and investors got more than the pref.  We can only make targets, can't predict the future.  That being said, we could have done better.

@John Blackman   can't you get banks to do your stuff for you there.. why would you bring in investors on these deals ?  just curious.. will banks not do spec loans?

@John 

@John Blackman thank you for sharing. You initially projected $396k for both sides, but if I am right the figures overrun to $650K. I get the impression that its the finance that main contributor of the price overrun. While I like the idea of ifunding and have various lots which I would like to raise money to develop. Am I right in thinking that I can get a better return for my money by investing in projects on ifunding  rather than getting involved in the stress and uncertainty of developing my lots. 

In your next project would you still use ifunding?  I have seen scenarios where projects are sold off plan and I have bought a few houses off plan and financed the project so that the worry of finance would be down to the purchaser and not the developer. Is this a scenario that could potential be more suitable?

@Henry W. That figure is the total cost of the project including the land and prestarts which were roughly $200,000, so the cost overruns were only about $70,000 and we have some remaining funds, so it may come down depending on buyers inspection items.

Regarding iFunding I would certainly use them again.  They did their part and raised the money.  Each project is different, so it really depends on what your goals are.  iFunding has started taking on much larger raises successfully, many of which are parts of much larger deals.  Their most recent one is only $3M out of a $50M+ capital stack, so you're buying into a much larger project there.  This project was an equity raise, but debt is more popular in general on crowd funding sites.

@John Weidner The modern look is certainly non traditional, some people love it, some hate it, but the market for moderns is pretty good in Austin.  This project is located at 1122 Linden, in 78702.

@Jay Hinrichs We do use banks on many of our deals.  This one was all equity which was kind of an experiment.  It worked, but it was expensive.  We crowd funded this a year ago when crowd funding was even newer in the Real Estate industry.  It was nice not having a monthly note too, but given the experience I would certainly crowd fund smaller sums to pair with banks like we did with two projects earlier this year.

I received my final distribution today from my investment in this project and while it did not meet projections, we did make a 10% IRR and about 1.2 x on our investment. This deal had a lot of issues outside of Inner10's control. It seems as if they stepped up and potentially took a loss so investors would get their preferred 10% return. I would like to thank @John Blackman  and @Bryan Hancock for seeing this through and protecting your investors.

Thank you for the kind words @Mark Robertson .  The project did not go as well as we would have liked.  Ideally it should have been done 6-8 months earlier with a higher return on investors money for the time invested.  We fell prey to a classic growth problem where one of the builders we were using was unable to scale as we rewarded him with more contracts based on previous performance.  It is unfortunate as we are not likely to use that vendor again due to the lapse in performance.  We take full responsibility for the project however.  This has exposed areas we want to improve and we are addressing them with new vendors going through the same scale out process with them as well.

You can see the final pictures for the project here.  It did turn out very well, it just took too long.  

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