Beginner Q's on financing new apt construction - Posted by Sam (WA)

Posted by Ed Garcia on February 02, 2001 at 02:53:20:

Construction Loan


I have done construction loans.
What you are attempting to do is not as complicated as it seems.
You will need the following.

(1) LAND: Either free and clear, or 50% paid down for a land draw.
(Note) If you wanted, you could buy a lot with NO money down, have the seller subordinate their loan to a construction loan. I know that you already have your lot Chuck; I just wanted to mention that for the benefit of others who might be reading my post.

(2) PLANS: These plans have to be approved by the city your building in.

(3) PERMITS: As you know, sometimes the City can require you to build either conforming structures or off sites, that the City wants. The will also have building standard for your area.

(4) COST: The Bank will require a COST BREAKDOWN of all of your expenses. They will want to see a cash flow chart to pay you on a VOUCHER system. As each phase is down and signed off by city inspectors, the contractor will be paid for that phase. (Note) interesting enough, the bank will take your cost break down and analyze it with their computers. If the cost is more, that will concern them, and they will cut it back. If it’s less, that will also concern them because they will think you short changed yourself in building this project. So In essence, the bank can be instrumental in verifying your cost. However, don’t ever count on anyone but yourself. Do your own, do diligence. (Note) the bank will require at least 10% liquidity on you the borrower.

(5) CONTRACTOR: If you are a Contractor, the bank will want to see your resume and you contractors license. If you are not a Contractor, then the bank will want to have a resume on your contractor as well as a copy of his license, and financial statement.

There are other considerations, but this is enough to get you thinking in the right direction. If everything is done right, you should be in the deal about 70% to 75% LTV on a NEW property. In fact I have seen better depending on area, and size of the deal.

Good luck Sam, this was just a little food for thought, I hope this helps.

Ed Garcia

Beginner Q’s on financing new apt construction - Posted by Sam (WA)

Posted by Sam (WA) on February 01, 2001 at 19:06:20:

I am thinking of getting started in real estate development, but I have basic questions that I’d like answers to before even approaching a bank. What I’m thinking of doing is purchasing a lot, and constructing a 15-20 unit apartment complex. I don’t currently own a home, and can only put in the neighborhood of $100k down. My credit is mostly good (one paid off tax lien).

Is this a completely hopeless plan? About how much would I need to put down to get a loan for purchase of a $300k lot + new construction?

My wild guess for a total project cost would be in the neighborhood of 2.5 mil. Estimating low, say the units rent for around $10k/year avg… 20 units should be able to pay off a 2.5 mil loan in< 30 years, so the question is how much trouble will I have getting 90-95% financing for a project like this?