All Forum Posts by: Kyle Doherty

@Chris Seveney - understand your point. What recommendations would have to improve our agreement structure to account for the risk? Any resources you'd recommend I research?

And apart from that side, assuming the project goes well, does the cost and profit share elements look fair? And recommendations there?

@Chris Seveney - Do you mean basically what happens if the property ends up losing us money after sale?

We are in the Seattle market, so reality is that demand so significantly outweighs supply that on new construction you aren't really at risk of not selling, its more for at what price per sq ft it will end up selling for.

But one mechanism build in is that there is a $100k buffer where he will hold at least $50k of his build fee until after house is sold. So if we underperform the pro forma and we end up losing up to $100k on the deal, he would share in that $50k loss and I would eat $50k of the loss.

Is that what you mean?

Does the rest of the structure look fair?

I've started working with a builder locally on our first Development/Build Project. Essentially I am finding and procuring the land/lot via traditional financing and funding everything through the development phase until we get to Construction Loan. 

The structure we landed on was as follows:

- Fixed Builder fee of $300k (each project varies but are 2-6 units, and 5,000-9,000 total finished sq ft)

- Fixed Return on all my initial capital invested of 50% (plus return of 100% of initial capital)

- Remaining Profit Split of 60/40 (60% to me, and 40% to him)

I understand a lot of this hinges on how accurate the proforma is and how close we can get to actually hitting our development costs estimates, build cost estimates, and sales per sq. ft. estimates. But assuming I feel extremely confident in the proforma numbers, does the structure seem fair for the risk and requirements from each party? This should be a win/win for both of us.

Would love input/opinions on this structure and if there are other ways I should be looking at it. Thanks in advance!