Taking the guesswork out of real estate development financing

[7thDisciple]

I`ve been thinking about starting my real estate company (in Montreal) for a long time and finally made the move this year. I`m mostly interested in the development of smaller projects (at least for now) so I went ahead and acquired a small piece of land in order to build two semi-detached homes on it.

After having gone through the motions with the city of Montreal to get all the necessary permits, I`ve been looking into financing and came to the realization that it`s almost impossible to get a straight answer out of banks or some of these private investors out there. All they have are excuses not to lend you money instead of solutions or at least reasonable requirements.

My questions is: what does it take for a starting developer to get financing these days? Here are some numbers to look at:

Current mortgage on land: 250k (paid 270k)


Estimated total cost of construction : 650k


Estimated sale value of each house: 605k


Personal cash available: 110k


Household revenue: 160k


Other household debts: 12k

 

[Thomas Beyer]

Many banks lend 75% of cost, including land. So in your case 75% of land cost plus 650,000. They do this after you show them plans to build, city approvals and appraisals of to be constructed houses. Usually in 4-5 draws: on land acquisition, on basement poured, on framing completed, on lockup and on construction finished. Rates between prime for very asset rich borrowers to prime plus 3 for the average guy to 10% for low networth guys or high risk cities. Talk to a mortgage broker. On your first project likely rates will be higher and they will likely lend less than 75%, maybe 50-65% depending on your persuasiveness, networth and building plans presented.



unclear what you paid for the land ? 270,000 ? Then total cost is about $920,000 and thus you would need about 30-35% of it in cash, roughly 300,000 to 325,000. Perhaps the bank of dad comes in handy here ?



go for it, bro. Very profitable if the sales can happen at the price points shown.



Aller Anfang ist schwer. All beginnings are hard. But a good business to be in for the right guy.