Please Help: Residential to Commercial Rezoning + Hard Money

[Account Closed]

As a new investor, I don't want to believe a deal I've conjured will work without properly consulting the BP community first. Please consider the following timeline/information and let me know what I'm missing or if the idea is too far-fetched please:

1. With a hard money loan, I will purchase a somewhat large infill lot in Mesa, AZ for a GREAT price. I just put the offer in yesterday and received a confirmation of acceptance from the seller's agent today. Zoned as a residential multifamily.

2. After closing on this lot, I plan to get the lot rezoned as a commercial multifamily -  I want to build 14 units.

3. After rezoning is complete I will begin to build, from the ground up, the 14 unit complex with another hard money loan. My estimate for construction is approximately $550k.

4. A couple of doors down from the property I'm purchasing, there is a 16 unit complex that is on the market for 1.1 million. I understand that commercial property value is based on cash flow/income rather than comp's - but this information is necessary I believe. I feel that once I complete construction and move in tenants paying the same, if not more, as the other property mentioned, that I could have a similar listing value/instant equity and the other property. Does that make sense?

5. After construction if finished, I'd either like to sell or refinance the property and pull out the equity. 

Numbers:

Lot Price + Construction ($550k) = $600k

Similar property listing price = $1.1 million

My finished property with tenants value = $1 million

Equity to be distributed = $400k

My questions to you:

Besides selling my personal residence in 2013, I have no real estate experience. Will I get a hard money loan for the construction without any real track record? Approximately $550k.

If I do get financing for construction, will a traditional bank grant me a commercial loan once I have tenants? This is required in the event I want to hold onto the property. Selling is an option as well

As a plan B, in the event I am not even given an opportunity to build, what could I do with the lot? Go ahead with the rezoning and try to sell?

Oh by the way, I also have a 640 credit score. 

Please help.

[Jon Holdman]

@Account Closed there is no need to fill your post with spam to try to generate attention.  You've posted on a Saturday morning.  Have some patience.

I think you're way over your head in this deal.  It sounds like you have little or no cash of your own to invest in this development deal.  That alone tells me you're not going to make this fly.

There is little chance a HML will give you a 100% loan to buy a chunk of land. Land is very illiquid and if you buy it there's a good chance you will be stuck with it for a long time.

You talk about rezoning this land and then developing it.  You say you have no experience in doing such a deal.  So there is a lot of "you don't know what you don't know" going on.  Rezoning is a long, expensive process and you may well fail.  At the very least, you will need to develop a detailed plan and then present that at public hearings for the planning and zoning commission (or whatever its called) and city council.  You may get pushback from the city or neighbors.  I have an investment in a chunk of land we're trying to develop and it has taken YEARS to get through this process and we are not there yet. 

Typically you wouldn't start by buying the land, unless you have your own cash to do it.  Instead you would buy an option on the land.  Then start with the rezoning process.  Only if you succeed would you exercise the option and buy the property and start with the actual development.

So, you're going to have to spend some bucks up front and there is a very real chance this will go nowhere and the up-front money will be a total loss.  That's why you're going to have a very hard time getting a lender at this early stage.

I'd recommend trying to find a partner who's done similar projects in the past.  If nothing else, running this project by some experienced developers will help you understand what's involved.

Now, I'm not saying don't proceed.  A lot of this sort of thing is going on here at this time.  There may well be a good opportunity.  But this is a big and complex place to start.