Developer Connection

General Real Estate Investing
1

Hello friends,
I have performed a couple of rehab projects and found them very interesting. Now, I would like to develop a couple of projects from scratch.

Do you think it is a good idea to buy some land and start something (condo or commercial) from scratch? If yes, how do I find land and what do I do after I acquire land?

Do you think it can bring better fortunes than buying a property that requires some touch ups?

Also, how do I finance a project like that?

Are there any developer resources?

How do people learn to be developers, I am not aware of any training courses?

Appreciate any comments.
Thank you so much

2

The only courses that I know about that are available for developers, is at your local universities or colleges. This is a highly specialized field.

There is financing available for developments but it depends on the type of development (residential, commercial, multi-tenant, single tenant, etc).

I would recommend doing a little research at a nearby university, maybe even take a course, to see if this is something you really want to do.

I would also join a professional association geared to the developers of the type of property you’re interested in. You can then network with other developers and learn a lot.

Regards,
Patti

3

HI Deperado,

Although Patti’ suggestion is valid for someone who wants to master the art of development, I suggest that it will be quite some time takikng that route and that means loss of profits while you are being educated beyond your intellect. In other words, the best way to learn is to find a project that interests you and then just talk with a lender or broker and find out what’s necessary to get the project from the table to the close.
Construction loans basically come in only two forms… pre-construction and construction perm.
I always suggest commercial being the way to go for two reasons.

1- Bigger profits
2- We only do commercial lending :slight_smile:

If you have any questions or would like to run a scenario by my, I would be glad to help walk you through the process.

Good Luck

Jeff

4

If you have a lot of money and time, then yes, its a good idea. I am a partner in a real estate investment and development company and there is a whole host of things you need to know before you get started. I just happen to be connected to a brilliant man! Good luck!

5

Hi Mantriamarquez,

Why does he need more time & Money?
I think that those of you who are indoctrinated iin residential real estate have a misconception about commercial deals.
Let me try to clear up some of the misconceptions.

1- Threre really is not a big difference between the two. The loans are the same… Conventional, fixed, adjustable, neg am, interest only, construction, stated income, stated assets, etc. all work exactly the same for both residential and commercial loans.

2- LTV’s work the same for the most part. Although some types of properties cary higher LTV’s, it is generally because of risk factors like environmental issues or sometimes historical payback from different industries, but in essence they work the same.

3- There is a misconception that there are no 100% financing programs in commercial is a myth in some cases and inexperience or lack of creativity in others. We have some straight through 100% commercial financing programs and we also have what we call two stage hybrid financing which combines two or more loan types to create 100% financing. In other words, no down payment.

4- Most people think they have to be rocket scientists to do commerfdcial when actually it is easier for the broker to do it. I don’t know how other commercial companies work, but in our case, the broker or realtor simply submits a simple loan inquiry and they are done. One of the members of our review team takes the loan and does all of the work form there. Don’t you wish it were that simple for residential? No 1003’s to bother with, no 24 page doc packages for you to get your borrower to sign. No RESPA.\

5- The theory that commercial loans cost more is also not always true, although sometimes it may be. Although there is no RESPA to deal with, you still have to remain competitive.

6- Appraisals for commercial generally run from 1,500 to 2,500 for run of the mill properties, however, it can run a lot more. For instance, we just finished an 11 million dollar golf course deal where the appraisal cost to the borrower we over 100,000.
Appraisals are the longest part of a commercial loan. It generally takes 4 to 6 weeks for an appraiser to actually complete an appraisal from start to finish.

I hope this clears up some misconceptions.
If you have any questions, whether specific or general, please feel free to ask. We’ve been doing this for about 15 years and we’re getting the hang of it :slight_smile:

Jeff

6

As a commerical lender, do you go over everything that a potential borrower would need to know about a project from raw land up? Infrastructure costs to local permits that need to be filed to marketing to political issues in the area? If your company does all that, then I am coming to you next time before we even consider buying.

7

Well, I wouldn’t go that far.
Although we hand hold and walk the borrower and.or broker through the lending portion of the process, things like permits and construction costs are really not lending areas.
Also, things like permits and infra structure costs will very from state to state and even town to town within states.

We do everything from land deals to airports on mountain resorts but we can only advise on the lending portion of the deal. Any lender or broker that steps beyond that would be opening themselves to serious liability.

We do, however help to direct our borrowers as to who and where they need to go to get those answers.

But for most deals, those are not the concerns of the borrowers to figure out. that’s why we have surveys, and appraisals and commercial realtors. All of the issues that you are referring to are not direct issues for the borrower. They are issues for he survey and appraisal people.

Unless it is a new construction, those issues are all part of the previous title, survey and appraisal and fully disclosed.

Once a loan is accepted, and we are speaking of complex loans, there is often an executive summary prepared on the borrower’s behalf describing most issues and needs, which includes permit and other issues.

But for the most part on typical properties it works like this…

1- A broker or borrower enters a loan inquiry on our site.
2- It goes into a review team.
3- 24 - 48 hours later we have an offer or a denial
4- We give them a list of docs required and conditions
5- The appraisal is ordered and completed.
6- We close the`loan

8

Hi Jeff,

Would you suggest that one prequalify first to “see” how much commercial property one can purchase?

I would assume the appraisal fees for the property one wants to buy MUST come from the buyer?

Thanks!
Apt Building Guy :stuck_out_tongue:

9

Jeff- I would think that in the scenario you are giving, the “borrower” is a real estate investor, not a developer. A developer most certainly does have to be involved in all those facets of infrastructure, permits, perk tests and such. An investor would not be concerned with those issues- 2 different creatures. And of course, that is in referral to development of raw land, which is all we do.

10

Hi Lenny,

Normally appraisal fees come from the borrower, but we have had motivated sellers that were willing to pay for the appraisal. Sometimes at their own expense, but they usually build it into the selling price when they do.

More important than how much you can afford to purchase the building for is the DSCR. The DSCR (debt servicing ratio) is kind of like a profit/loss statement for the building. You have to have at least a 1.00 DSCR. That means you are breaking even. It is more comforting to lenders to see a DSCR of 1.25 to 1.50. It shows tha the business or rent roll minus expenses is showing a profit and will be able to not only have enough money coming in to pay the mortgage but that there is also money coming in the cover your won personal expenses etc. so money is not diverted to paying your other bills. Another important area is reserves. Remember, when the heat goes out or a pipe bursts or something else happens to the building, as the owner, you have to repair it in a timely manner, and that usually means immediately.
The historical occupancy rate is important also.
When you look at a building, you want to see what and how often the turn over rate is and if it is high, you want to see how long apts stay vacant.

11

Hi MantriaMarquez,

You are absolutely correct. That was the point I was making.
Someone who is just buying the property doesnt need all of that.