Getting financing to build 36 units on owned land?

Question

Hey everyone!

I'm looking for some advise on where to go from here. I currently own 8 doors and what I was thinking about doing is selling one of my quads and 1031 exchange it for a 6 acre plot in my hometown where rentals are in demand. The land is zoned 6 units per acre and located in a good central part of the county.

My question is, is it possible to find a lender who would provide a construction loan for something like this if I was to get the land in my possession free and clear?  I was the owner/builder of my primary home so I do a little construction experience but I'd be using a local builder friend of mine. He is currently building several duplexes and quads. I would like to build 9 two story quads or something close to that, and probably in phases.

Any help is appreciated. I've been a student of BP for 3 years and its changed my life so I know I'm in the right place here.

Jaysen Medhurst · Answer

Yeah, @Brandon Rouer, you may have to wait until everything settle down before banks will get on board. At $10MM plus land costs, you're look at a per unit price of $300k+. What does the buy in your area? My guess is that if there are 6 buildable acres, per-unit costs of existing stock is much, much lower than that.

Brandon Rouer · Answer

@Jaysen Medhurst

I went ahead and contacted the commercial loan officer at my bank and unfortunately because of the virus he said that the bank is not at all interested in multi family. They are worried that about 20% of their loans will be unpaid next month. He said that if I was able to raise 50% LTV I’d have a 50% chance of approval. Not at all the answer I was looking for but it looks like I have some more time to make money and go bigger once this mess clears up. BTW I had a local builder estimate the build cost at $10M.

Jaysen Medhurst · Answer

@Brandon Rouer, before all this craziness most banks would allow 70-80% LTV on the total cost. Now? Who knows? Worth having a conversation with some commercial loan officers. During the conversation ask how many deals they've done that are similar to what you're doing. Would they be willing to put you in touch with the developers who did those projects? Chances are that you'll have to get an experienced partner on board. I doubt any bank is going to give you $6MM+ for a project the likes of which you've never done.

Brandon Rouer · Answer

Thanks Eric. I'm in Vero Beach, FL! Great place to be and I have 8 doors here. Quad, duplex, and 2 SFRs (One SFR I acted as Owner/GC). My goal is to expand greatly and I like the idea of being able to manage one large property rather than several different. Like I said before, I just don't have the knowledge in apartments. I think what I need to do is find out what size buildings would fit on the land, estimate the cost to build, determine what a lender could offer, and see if the numbers make sense. One issue I have is that I want to call the county and ask what they know as far as what I can build there however, I don't want to bring any attention to the land as I fear another investor/builder would scoop it up quickly. What are your thoughts on this?

Brandon Rouer · Answer

Thanks Jaysen. Is the LTV% on this type of loan similar to normal residential housing? The land I'm looking at is worth about $300k and I can figure out how to obtain that but I do believe the project would cost at least a few $M. Wondering if I'd be able to get a higher LTV or if I have to go smaller or find a partner. Would love to build about three of these style apartments. I just don't know anyone personally that's done it.

Eric Johnson · Answer

@Brandon Rouer as mentioned by Jaysen, these loans are available and are usually structured as construction to perm. Start the dialogue on what you need to know with people now.

What market are you in??

Jaysen Medhurst · Answer

Yeah, this kind of financing is available, @Brandon Rouer. Construction-to-Permanent loans are pretty common. Talk with the commercial folks at your local banks and CUs.