Townhouse Project
I'm currently in the process of obtaining final approvals to knock down a commercial building and replace it w/ five attached townhouses. I have had an initial conversation w/ a builder (we agreed to speak again once the plans were finalized/approved) & will be meeting with another this week - I have also placed an initial call to a local lender to see what is possible.
Because This is my first go-round I am asking alot of questions (but not really sure if I'm asking the right ones). Can anyone point me in the right direction?
Ideally, I'd like to keep these units for long term appreciation/cash flow - so I don't want to give up a piece to a builder.
However, I also don't want to GC the job (due to lack of expertise).
Can anyone advise what I should be asking the builders & if they have done a similar project. Additionally, can you recommend a lender who'd be interested in this type of project?
thx - ChipNJ
Hello,
You must be very confident you can locate financing suitable to yourself. I am confused, do you own the commercial building your knocking down?
I don't understand why you would move forward with knocking down a building before you had financing resolved and a builder selectedm can you help me out with that?
Thanks a lot,
MT
[addsig]
For this type of project you would probably need get a hard money loan if you want to minimize down payment, otherwise any bank would probably be able to give you a construction loan once the commercial property is torn down. To be honest if you are really new to contruction, I would start by building single family homes. The best way to start is to use the owner-builder (owner occupied) exemption available in just about every state to pull your own permit and build it yourself. You will learn a great deal about construction issues in your area, have a good idea of what things should actually cost, and get up to 20% equity when you are done. There are several lenders willing to lend 100% of cost (provided you have 20% equity from the appraisal, which isn't difficult to do in most parts of the country) so you don't even have to put any money into the transaction, a truly free education. Why make mistakes due to lack of experience on an expensive project like that with little margin for error when you can make the mistakes on a smaller project with large margin for error? Hope that helps and good luck.
As a GC I would say that you are pretty gutsy to jump into a project this size. Hopefully you have the capital to go the course. I would figure about 15% extra for cost overruns at a minimum with 25% not being unrealistic.
Financing is the key to this project if you want to keep all the action for yourself. I would oversee a a project like this on a fee basis generally. Otherewise you are going to spend 20% markup on a GC to oversee it unless perhaps you have a builder that does everything inhouse like we do then it would be around 15%.
There are many books out there on how to put a deal like this together e-mail me and I will send you to a site.
I would agree with the assertion that there is more room for error on a residential project, but only because it is smaller in dollar amounts not because it is any less involved.
Most lenders will not lend owner builders $$ without a GC to oversee the project, sign the forms, and be responsible.
Good luck!
Thanks to all for insight. To answer some of the questions - yes, I own the property (currently a bar a two story retail and storage garages sit on it) Condition is quite poor (picked it up at a foreclosure sale a few years back). Guy who's running the bar can't increase revenues (& therefore my income) because property is situated in a residential area w/o much parking - (was considering a major rehab when I saw a townhouse development in neighboring town on same size lot) - I approached the town & asked them if they wanted to lose the bar & received an overwhelmingly positive response - so here I am - they've approved the project & we are finalizing approval of the site plan. The people in the rental units have indicated that they will stay until I level the place - so I can proceed at my leisure. Though I'd like to move forward faster than slower. The architect has a builder associated with him who is interested as well as the other two builders I already mentioned. So - I didn't go looking for this - but am kinda looking to make the best out of a average situation - if that makes sense
Just to clarify - I want a builder to build these units for me - I just didn't want to partner with the builder & then have to resell all the units in order for us (Me & the builder) to make money.
I reread my post & the responses & feel that I probably didn't make that clear. thx