Building a multifamily from scratch

[Brian Jung]

Hi Everyone, 

I am a newbie investor and has never done renovation on my own place, let alone building a multifamily from the scratch. Recently, a friend of a friend approached me and offered if I would go in as 50:50 partner in a deal that he is currently working on. 

The deal is in Kelowna, BC

Land was appraised at $950,000. They paid the bonding (~$150,000) to the city and already have the development plan approved. They are valuing the entire deal at 1.2M and asking 600k to go in as a 50:50 partner. 

Currently the property is owned by a numbered company. This is my first time engaging such a big deal and a bit nerve racking. Anyhow, What would be the due deligence process from my end ?

Things that I could think about are...

1. Make sure the company does not owe any taxes, any bad debts or in any kind of legal problems since I will be the 50% shareholder of this company

2. Make sure the Development plan is approved by the city. 

3. ????

If anyone has been in a deal like this before, what should be cautious about? Any advise from a senior investor would be appreciated.  

[Edison Reis]

Hi there

I am from Kelowna and would ageee with Jay. 

The construction rate has been pretty high in the city in the last 12 months and several people who tried to benefit from the infill variances (To build 2 or 4 plexus where previously had a SFH) are currently struggling to to cash flow. Several are currently losing money so they need to pray for appreciation overtime.

Multi Family is exciting indeed but that's not for inexperienced investors as it can make or break you in a hurry. I always ask myself ..... "How do I rate my knowledge, experience and likelihood of succeeding from 0 to 10?" If the answer is below 8 it is a no go (or I would need a JV partner to cover the weak links however in this case he/she would likely to ask more than 50-50 as you would need money & MF knowledge)

When  the deal looks  too easy or profitable (too good to be true) my bells and whistles start going like crazy.  

I recommend to proceed with caution 

Good luck

Edison