All Forum Posts by: Account Closed

Hi folks,

I'm currently working on building new construction single family homes on infill and rural lots in my market. 

Several lots I'm interested in do not have "new build" comps, only pre-existing. 

I'm wondering how appraisers usually value new construction when there are only pre-existing homes? Does new construction receive a premium or will they be fairly in-line with pre-existing sales?

Are there any FHA guidelines on this?

Thanks,
Patrick

Thanks very much @Amy Wan

What if my investors have veto power and can replace me as managing member? Is that enough active contribution for the partnership to be considered a JV as opposed to a securities offering? If not, and my goal was for the LLC to be considered a joint venture/ partnership, would I need to spell out specific roles/ responsibilities in the operating agreement? Would "Bob Smith is a consultant/ adviser" be good enough?

I appreciate your offer to chat off-line. This isn't all that pressing at the moment. I ended up finding a smaller commercial deal I could take down without 3rd party equity... but I certainly plan on raising money for my next deal, and I absolutely don't mind paying a high hourly rate for premium advice!

Hi BP,

I'm in the process of raising some equity for a commercial deal and I've been reading about securities law. 

I'm still getting my operating agreement together, but the general structure will be an LLC of which I will be the managing member/ sponsor, receive an asset management fee/ acquisition fee, and a promote based on the performance of the asset.

I'm trying to determine whether I need to file a 506(b) exemption. 

My understanding of the "Howey Test" is that for an investment to be considered a security it has to meet the following criteria:

• It is an investment of money
• There is an expectation of profits from the investment
• The investment of money is in a common enterprise
• Any profit comes from the efforts of a promoter or third party

It's that last point that I'm struggling with. The operating agreement for the LLC between myself and my investors will look a lot like a GP/ LP relationship. I won't have majority ownership of the LLC, but will have control... and will be doing "most" of the work.

Under what circumstances would I not have to file a 506(b) exemption? It seems if my partners did some work on behalf of the LLC we'd be in the clear... is holding quarterly meetings with partners and having them vote on resolutions good enough? How material does their involvement have to be?

In addition to staying compliant, I'm also concerned about cost. I've read filing the exemption can be $10,000 and since this would be my first commercial deal (I'm planning on raising a couple hundred thousand dollars) the expense of filing is definitely a non-trivial sum...


Any perspective would be greatly appreciated!

Patrick 

I'm about to pull the trigger on some land for a new build single family. 


I'm wondering if anyone recommends additional contingencies written into the contract other than your typical "title, survey, appraisal, insurance, inspection?"

I'm planning on paying cash for the land, and want to guard against potential HOA covenants/ deed restrictions that may prohibit construction. Would you recommend I write language into the land deal that allows me to terminate if I find a deed restriction/ HOA covenant that messes with future development?

I've checked the recorder's office and I can't find anything that looks concerning, however, a similar lot in the same subdivision was advertised on the MLS with a deed restriction prohibiting new builds under 2300 sf.


I'm also worried about other older encumbrances I haven't considered. 

Do Title policies generally cover unrecorded easements?

Obviously policies wouldn't cover deed restrictions that are recorded, right? Since they're public knowledge?


Thanks in advance for your help!

Hey BP,


I've been flipping houses for a couple years now, but I'm starting to get interested in development. 


I'd like to try to build a one off single family home to learn the process. Returns look better than house flipping, and I think I've found a couple banks that would do the deal.


Wondering if any of you have tips on finding a builder willing to do a one off project like this?


Ideally, I'd want to cut them in on the deal to align everyone's incentives. 


Any resources you'd recommend?


Thanks,
Patrick 

 What is the current tenant paying?


Thanks,
Patrick 

 
You'll have a positive IRR if the cash in has exceeded the cash out regardless of whether or not the property has sold-- it's just that a lot of the time, cash in won't exceed cash out until you sell. What this means is you'll have a negative IRR each period until the cash in = the cash out (all investor capital has been returned)

So a pref based on IRR won't pay off annual promote to the sponsor until cash in = cash out... which is essentially the  problem (for the sponsor) I highlighted in my original question. 

 
Based on what other people are saying, if your pref is based on IRR, your investors would essentially have a negative return until you've returned all of their capital (most likely happens at sale or refinance). If you're basing the pref off of CoC, presumably you'd negotiate a split for earnings from the sale. Not sure if "earnings" would be net sales proceeds less initial investment or like net sales proceeds less adjusted basis. Sounds like you could also have a CoC pref for the annual cash flow, but then also have an IRR hurdle rate and promote for the purposes of sale. Seems like this would function similarly to a profit split, but might be more confusing...