New Construction-Creative Financing

[Nicholas Gustafson]

Hi Group,

I am in need of some help here. 

We are looking to build new starter homes in Central Florida. 

This will be my first development, and I am compiling as much information as I can to see if the numbers work. We have already found the land and a reputable builder to work with. 

I am a licensed real estate agent and will handle all of the marketing/selling of the community. The builder will handle GC work,  City permitting, etc. 

I am looking for advice from developers that have already been through the process of building a small community with 10-15 homes. 

I know that every deal is different, but here are a few questions that I have:

• When working with a builder, is it typically better to get a price from them for a complete build-out or negotiate a partnership with profit sharing? What is your opinion on both strategies?  

• As for the land, has anyone seen deals structured with owner financing until the first home is built and sold? Any other creative financing to give some thought to?  

• As for the new homes, is the best way to finance the construction internally, or have the end buyer finance the construction pre-build. 

Tell me what you think about this strategy:

1. I go to the owner of the vacant land and negotiate a purchase agreement contingent on all approvals and the sale of the first home.
2. I go into a 50/50 financing and profit sharing split with the builder. 
3. We agree to personally finance and build the first home prior to having a buyer. 
4. The remaining vacant sites will be sold with a selection of 3-4 floor-plans and buyers must obtain construction-perm financing or cash. 

Any input about financing, taxes, HOA, and target profit margins would be greatly appreciated.

Thank you!