Seeking creative financing advice for 1st development deal

[Lyndsey Daigneault]

Hello!

Thanks so much for taking the time to read this post. I am a real estate investor and licensed agent, investing primarily in small multi-families in my local area (Rhode Island). In working with a buyer, I came across a development deal that has the potential to be a slam dunk. The buyer has offered to bring me in on the deal.

Although I have some experience with creative financing, I need some advice on this one. Let me fill you in on some of the details:

-Commercially zoned lot currently has a 5 unit building (4 residential and 1 commercial) in extensive disrepair.

-Current structure would be knocked down.

-Lot has potential to be developed into 10 - 12 residential apartments per current zoning.

-Current owner owns the property outright and may be willing to come in on the deal.

-We are buy and hold investors, and are looking to hold the property long term.

I have a feeling that the owner would be willing to accept a lower price in the initial purchase, if we allowed him to be part of the larger deal. It would be ideal to bring him in as a partner, and pay zero money out of pocket for the land. We'll be spending money on engineers, land attorneys and architects up front, so it's preferable that he get a cut of the overall deal in lieu of money up front.

So, for all you developers out there, what are your thoughts? Should we see if he'll owner finance 100% of the purchase of the property, and offer him a small cut (5-10%) of the overall profits once the project is complete? We will also be bringing in other partners for financing purposes once the project is approved and we're ready to break ground, though the majority of the financing will likely be via a construction loan.

Thanks in advance for your help!

Lyndsey Daigneault

Zen Real Estate Group