All Forum Posts by: Matthew Rensel

Definitely. Ask him for an introduction to (or at least the name of) of a similar builder they've lent money to in the last year. If he doesn't have one, he's almost certainly not going to be able to do your deal.

Hey @Matthew Rensel. The builder wants "you" to provide the financing (i.e., you lend them money) or are they looking for you to be the "borrower" of the project? I suspect the builder has crappy credit and can't get approved on their own.

Also, as a former banker myself, local banks aren't generally interested in financing new construction on this size of project or a builder that doesn't have extensive experience in these type of builds, in my opinion.

@Matthew Rensel Got it. Have you talked to anyone at the bank about this yet (at least at a high level)? I know lots of developers that spin their wheels trying to find banks to finance their construction or rehab projects when they're never going to approve them anyway. Often times, I advise folks to start with HML or PML and the refi into a DSCR loan with a bank/CU when the property is stabilized.

@Matthew Rensel Got it. Have you talked to anyone at the bank about this yet (at least at a high level)? I know lots of developers that spin their wheels trying to find banks to finance their construction or rehab projects when they're never going to approve them anyway. Often times, I advise folks to start with HML or PML and the refi into a DSCR loan with a bank/CU when the property is stabilized.

Hey @Matthew Rensel. The builder wants "you" to provide the financing (i.e., you lend them money) or are they looking for you to be the "borrower" of the project? I suspect the builder has crappy credit and can't get approved on their own.

Also, as a former banker myself, local banks aren't generally interested in financing new construction on this size of project or a builder that doesn't have extensive experience in these type of builds, in my opinion.

Again, I like the idea of a new fourplex, it just seems like you’re glossing over alternatives/possible problems. 

1) You say you want to hold for cash flow instead of taking $120k cash by selling as soon as it’s built. How long will it take for the property to cash flow $120k?

2) You say you can kick in another 20% of $650k if they can’t finish. So you’d be ok coming out of pocket another $130k and paying $780k for this property if the builders fail to perform?

Lastly, I’ll repeat. I want you and them to succeed. I want more new fourolexes to be built. And I am solely a buy and hold guy. I’ve done one 1031 exchange in 25 years, I own every other investment property I’ve purchase in 25 years. But if someone said they’d NET me $120k more for a property I bought yesterday, I’d probably take that deal. 

Are you assuming they are lying to you? Or are you assuming you should buy them all and list them on the MLS for $820k, clear $770k after closing costs and put $120k in your pocket?

How much of the $650k do you have to borrow them to complete the build? If it’s over $150k it’s too thin. You need margin for the point it’s 80 or 90% built and the builder says they’re out of money. 

I hear you now. “No, I’ll release the money on draws, that won’t happen…” Ok, so you need margin for when it’s 50% done and they say they can’t afford to get to the next draw point. Give them money or they lien the house and walk off the job. 

MAYBE I’d buy the land and lend half the building COST while the builder puts up the other 1/2. Then you agree to buy them out for 1/2 the difference between $650k and cost? Like a partner would? You being a “partner” and then paying the “profit” to the builder makes no sense. Anyway, as long as this is money you can afford to lose good luck. I love the idea of new fourplexes being built. But I haven’t seen one pencil in a long time. You could look at “FIG” (fourplex investment group) I get ads from them occasionally.