Equity for Builder - Thoughts and advice please!

[Andrés Uribe]

Hello BP community, 

I am in quite a situation with a development I am trying to do. Before I get into the story I wanted to ask for your thoughts on equity splits between me and my builder, the project is in Pittsburgh PA. I have no new construction experience, so my hard money lender is asking for someone with experience to jump on the loan with me with 20% or more on my entity, I asked my builder and he is ok with it but wants an equity split.

I am not expecting them to put any money into the down payment, monthly holding costs, closing, etc. What I am asking is for no down payment to start construction, since with the flips I do I usually put 20% down and then get reimbursed on the first draw, and they were ok with that - is that standard for new construction? - . What are your thoughts for a good equity split? I am thinking $10K per house... But not sure what is fair...

I am building 3 attached homes/townhomes, 2,400sqft vertical, 4 levels with garage, 4/3.5, tandem 2-car-garage and parking pads (parking is premium in this area, these would be only townhomes with 4 off street parking spaces in the area) rooftop deck, etc. Cost of construction is $1,590,000, existing loan of $351,000. Each house could sell between $780,000 - $800,000.

The story: I had to pivot, there are two houses on that lot that we gutted and framed to new layout already. Contractor tried to build garages underneath, but before getting there he saw an issue with foundation, tried to repair, did not pull a permit now we have a stop work order and we are into month 3. City keeps giving us problems because of the new "no permit" foundation walls that were built (which is fair, but &%%#$!!!).

So, I am trying to pivot and jump into new construction as an alternative to not lose money. I thought about selling the 3 lots I have, but unfortunately they could not sell for more than $120,000 each. I'd have a $140,000 loss, I am $500,000 into this with expenses so far, existing loan and out of pocket expenses. But I am still looking into it.

I have subdivision, front facing garage and 0' setback variances in place, land surveys, now waiting to hear terms from lender (fingers crossed), sign contract with builder, get insurance do demo, then building permit.

Thank you!

Andres