Thinking of starting big. Not sure of process/risks.

[George Hanson]

I've known for quite some time that I want to invest in real estate. I've been thinking lately that I'm about ready to begin. My interest first took the form of some kind of beach/vacation home on the coast down south. A place the family can use a week or two each year, and rent out the remainder of the year. Next, I found myself wondering whether it might be better to start with something residential and close to home. Being nearby and having long-term renters sounds on the surface to be less risky and more manageable. After that I thought maybe a duplex or other multifamily home - something where if you get one bad renter, the others help mitigate the loss. The more I think about it, though, the more I find myself interested in commercial investment, not residential. I always thought that maybe that was something for later down the road - my thought process has always been that commercial probably requires more capital up front. But is that true? Do you really need capital? Couldn't I locate a cheap & vacant lot, form an LLC, and take out a massive business startup loan to purchase and develop the land and fund the up front cost of a property manager that will help make sure the building remains full of tenants?

I’m sure my green is showing in more than one place here. Of course, I would imagine an undertaking like this would require incredibly in-depth demographic and feasibility studies among other things - worst nightmare is to be in debt with your only asset being a beautiful new but vacant building in a location no one wants to be. But I wouldn’t even know where to go to learn more about this stuff. Or whether I’m on the right track or somewhere in outer space. I hope you will all find it in your hearts to help guide me in the right direction. Or maybe throw a line to a space cadet floating away and pull me back down to Earth.

Thanks in advance!!

[Don Konipol]

@George Hanson

Qualifications for a development/ construction loan for a commercial development project are as follows

1. Free and clear ownership of the land in question

2. 25% or more of project cost in cash to be used first

3. Clean credit history with minimum 680 credit score

4. Proven experience in commercial real estate

5. Professionally prepared feasibility study

6. MAI appraisal

7. CPA prepared financial projections

8. Line item bid by a bonded contractor

9. Ability to obtain a performance bond

10. Pre approved take out mortgage loan

11. 50% or more pre leased