Having a Quad built - Advice needed!

[Matthew Rensel]

I am looking into a deal and would like some advice and have people pick at it and let me know what I am missing in this proposed deal.

I am a small real estate investor so far, I have 4 SFH rentals, 2 in Colorado where I live, and 2 in Texas. My goal is to scale up over the next few years and add another 10-20 doors.

I ran across someone that is saying they are building quadplexes in the same town in Texas as my current rentals there, so I have some support system there.

High level this is the idea on the deal:

• 4 units constructed as 2 duplexes on one parcel.
• 1250sqf 3/2/1 units
• $650k sale price, CME is $820k according to builder, will have a independent CME done if/as I move forward.
• Rent per unit is $1750 based on the other quad in the development
• Best guess at this point is about $16k/year cash flow at a 9.5% cap rate.

Builder is a sister company of a established company in a related industry that has done "some" builds before but not a lot. There are a couple hundred builds planned for this community but this would be one of the first few. I have talked to the buyer of the one quad that has been completed and he is happy and is doing additional builds with them, that is also where I got my rental comp.

The builder wants/needs me to provide builder financing. I would LIKE to be able to build one, get my down payment out of it after refinancing it after renting it out and repeat for a few more times with the same builder. I think this plan works +/- some cash for the next unit.

I have never had anything built before. Is this type of financing common? The builder suggested a local bank that they use and would like to see them succeed and referred me to the commercial lending department. I would probably refi into a DSCR loan.

Aside from a relatively inexperienced builder and the risk of a development that isn't "established" yet, what am I missing? Any suggestions or advice?

[Matthew Rensel]

Quote from @Jaycee Greene:

Hey @Matthew Rensel. The builder wants "you" to provide the financing (i.e., you lend them money) or are they looking for you to be the "borrower" of the project? I suspect the builder has crappy credit and can't get approved on their own.

Also, as a former banker myself, local banks aren't generally interested in financing new construction on this size of project or a builder that doesn't have extensive experience in these type of builds, in my opinion.

I realized as you were writing that I wasn't clear on the point. I would be the borrower.

I would also be looking to get quotes from other lenders on this. I am not obliged to go with that specific local bank that the builder is recommending. That bank is just the first one I contacted since they "know" what is going on.