All Forum Posts by: John Blackman

Sure, the first raise for 1122 Linden was all equity.  This is inefficient for two reasons.

1) You have to raise a lot more money, so the bar is higher.

2) The way we set up our proforma, we are paying a preferred return to all equity investors.  We're paying this pref while we're doing a lot of the non vertical construction where we have to wait on 3rd party vendors or City officials.  This just makes the money more expensive.

So for future raises, we are going to try and raise an equity component for the land because we need cash for closing the land and equity for any potential loan, crowd funded or not.  We'll raise a debt component for the vertical construction which will be secured by the land equity, and cost less than equity.

Buy the land (or is it financed in the deal)?

We always buy the land in cash.  You have to in our market.  No seller will go with a financing contingency.  This also provides equity for the bank.

Preliminary design and rendersings for package or completed plans with all architectural, engineering, etc., soils tests, and ?

This is raised along with the capital for the land.  We have to pay for all of these to get the loan.  A bank wants to see a complete set of plans.

Does Ifunding require actual appraisals or ?

No, they require all of your due diligence and comparables.  Your track record weighs heavily here as well.

Then they put on the site and you wait to see if it will fund?

It is not a magical pot of investors.  If you show up to any portal with no network of investors you are not likely to fund your project.  You need to bring your own folks too so that you get a running start out of the gate when your project is listed.  The crow funding portals fill the gap, introduce you to new investors, and are great at helping you grow your brand.  I would try to get a soft commitment of half your raise before listing on a portal.

Do you have a backup plan in case it doesn't fund?

Of course.  If it doesn't fund, then we go to a traditional small bank for financing or simply use our own capital.

What percentage of those funding your deals come to ifunding through your social media presence, and what percentage comes through theirs?

This is hard to say.  I would guess 50/50, maybe a little more from Bryan's network.  That may change over time as we deliver returns to our investors.

As a rule of thumb we do a one year construction loan when using a local bank.  They usually charge a point and some fees up front, then we make payments on the balance drawn.

Draws are tricky, because banks want to pay for completed work only.  But if you are bringing a lot of equity to the table in terms of the land cost, you may be able to get the bank to pay some funds up front as long as you keep your loan to cost ratio underneath the bank's requirements (usually 70% to 80%).

If your dirt is cheap, you will need to bring the first draw to the table so that the bank is only paying for completed work.

Typically we do around 8 draws.  This keeps the cash exposure to a minimum and keeps the GC from having too much cash on his hands.  They usually break out something like this:

1 - Foundation

2 - Framing materials and labor (largest draw)

3 - Windows and doors

4 - Mechanical start

5 - Mechanicals complete, insulation, drywall start

6 - Insulation complete, cabinets and trim start

7 - Cabinets complete, trim complete, start fixtures and flooring, start landscaping

8 - Final draw, GC retainer, all done.

Yup, we do the exact same thing.  Your accountant will thank you for it, plus if something goes wrong in your book keeping you automatically isolate the problem to just one property instead of your entire operation.

Antonio, welcome back.  The community here is really great and eager to help.  There are worse mistakes.  You can always finance some of the money out if you wanted.  Rates are really low right now.  At least you didn't lose any money.  Has the value of the building appreciated over the last two years?

@Derek Carroll The exits are about the same for a duplex condo vs. a single family house in 78702.  The real factor in $/sqft is how close you are to the city center.  There are duplex condos with higher $/sqft exits than single family homes because they are 0.5 miles closer to downtown.  Finish outs and size of the house matter as well.

@Bryan Hancock of course did a great job with the other questions.

Yes there is a impervious coverage restriction as well which is also 40% for the building and 45% if you include driveways, car ports, decks etc.

@Steve Babiak Austin only allows so many sqft on a lot and has height restrictions on top of that.  They mandate a virtual tent shaped like a traditional house that your structure must fit within,  So buildings with a flat roof are still limited to the height than can fit inside that virtual tent.

The FAR is strict as well.  Even if you maximize the shape under the tent, you can't go over 40% of the lot size for interior finished space.  There are some exemptions which can allow you to get in attics but when you start using them, the city pays extra attention to your permit, read more processing time and triggering comitte reviews.

Thanks for all of the well wishes everyone.  I hope I can contribute back by sharing some of my experiences.

Regarding healthcare, the Microsoft plan was what I would consider a 'Cadillac' plan.  It cost us nothing and paid for everything.  So I knew I was going to have to bite that bullet pretty hard.  To continue to pay for healthcare at the same level would have cost me $1,300/month for my family.  Ouch.

After looking at all of the plans out there, I found that they scale in price based on your out of pocket deductible.  So at the low end I could pay $800/month for an annual *gasp* $12,000 deductible before the insurance kicks in.  This is basically the you pay for everything unless there is a major disaster plan.

On the high end, there was $1,300/mo for the no deductible plan.  However that costs $6,000 more per year.

I chose the $800/month plan which is basically the same except I get to put that $6,000 in my pocket instead of the insurance companies pocket.  So I get to keep it if I don't use $6,000 a year in health costs which to date my family has not come near.

With that extra cash I simply put it into my HSA for a nice tax savings and write off and I just pay out of pocket for all of our health care expenses from the HSA card.

So at the end of the day my total annual health insurance costs are $9,600 in insurance and about $2,000 in actual expenses I pay from my HSA card.

Health insurance always seems like a scary topic, but really you can just assign a cash value to it and get on with life.  $10,000 is only a portion of one deal.  So if I can do at least 12 deals a year, this is just another line item on my household budget with some nice tax advantages.  I pay for my health insurance with my business account, so it's deductible too which further lowers my actual healthcare costs.

@Account Closed suggested. 

However this lot has a few challenges.  It is a corner lot with a long frontage that has a 25' setback so we are actually pretty constrained by that alone.  This lot is in 78721 which is further east and doesn't have comps as strong as 78702, so we weren't comfortable building a large home here because it would have put the total price tag for the house on the higher end of the market for that area.  So we are managing our risk by building something more modest.