How should I finance a 10-unit apartment development?

[Adam Rogalski]

I am looking for creative ways to finance a small apartment development in Michigan.  The total project budget is approx. $2.5M.  I own the land and it is valued at $150k.  Local bank financing would require an additional $350-$500k towards the down payment.  What are the my options to limit bringing that money out of pocket for the down payment but also minimize the amount of equity given away on the project?  Essentially, how much equity should I be prepared to split with in investor in order to not bring additional cash to the deal?

[Clayton Silva]

Hey Adam, I would be prepared to give up most of your equity to be frank. a 2.5MM project with 150k is less than 6% of the total project in equity. The bank is going to typically finance between 65 and 75% of the cost depending on the ARV. If I was an investor financing the remaining 29% - 19%, I personally would expect my equity split to be reflective of such. I would also be analyzing you as an investor. Are you just bringing me land, do you have any experience in development? In property management? In putting together a deal? If not and I have to go out and build the team and organize the deal, I will factor that in too. So depending on your experience, if you are bringing a piece of land and some plans, I the outside investor would want likely between 80-90% of the equity if I am providing all the funds for closing, the experience, and the reserves, just to be honest on something like this. If you have the reserves and you have a ton of experience, you might be looking at keeping between 30-40% equity on your side.

Edit: And taking 10-20% equity on a deal like this with an experienced investor might be completely worthwhile and life changing to be clear. If you can JV for a seasoned developer and investor on a deal like this and make 10-20% of the upside while tagging along and learning from their experience, that education is going to be worth way more than trying to get a 50/50 split or something like that. Education and skills are worth infinitely more than just the exit on one transaction.