Hard Money for Single Family Spec Build - Deal Structure

[Michael Arnold]

I have a potential hard money cash provider to fund the acquisition of land and fund new construction build. I'm a licensed GC and would handle everything project/construction related. Site selection, estimating/detailed budgeting, all labor/material/soft costs are an open book with no markup/GC fee, and i own all site management from groundbreaking to closing.

- Total cost of these projects would range between $390k-$550K. Projects will take 5-7.5 months to complete.

I assume a conservative net profit at closing between 13% and 15%. A home run between 15% and 20% and, if above 20%, a grand slam (as long as the market holds).

Is it fair to assume 50/50 split of net profit at closing? How would you structure this deal? The goal is to try and do 2-3 of these projects/year.

[Jay Hinrichs]

if they are providing all the cash no debt.

and for easy math

15% of lets say a NET NET NET of 400k  this is after all soft costs and sales costs.

profit is 60K total.. and lets say you did a 50 50 thats 30k each and lets say you did not add any GC mark up to your build costs..

so to get to the net number your investor is putting up 340k in cash and these deals usually take 8 to 12 months.. so just easy math at 12 months thats less than a 10% annual return if you do it quicker little higher.. I cant see this working for the investor lots of risk with new build and markets.

I think to do these you need to add debt into the equation and hopefully still have your 15% NET NET NET after all costs in including debt.. so maybe investor puts up 100k and now makes 30k that is tolerable given the risk..