Author Topic: Help Establishing an Addition Construction Credit Facility  (Read 1251 times)

CardinalCowboy

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Help Establishing an Addition Construction Credit Facility
« on: September 29, 2014, 09:36:57 PM »
Dear All,

I discovered a great business model last year that's worked very well for me during this short time.  I am now seeking a way to establish a credit facility (200K to 1M) to help me scale up faster.  Suggestions please?

Details:  I found a wrinkle in the local laws that allows one to build an addition to a SFR in such a way that the completed building remains classified as a SFR yet is easily rentable as a du-, tri- or fourplex and this does not violate any local landlord/tenant laws.

I bought four SFR houses in my area for about 300k each.  For each of the houses, I put minimum down payments (5% to 20%) and rent from each the existing houses is about $1800/month and slightly exceeds the cost of PITI, utilities, gas, electric, and gardening.  I can build an addition for about 120k that contains two "units" of 2bd/2.5ba each with lots of premium features (9.5' ceilings, acid-stained colorful concrete floors, radiant heating throughout, central air, LED lights, granite countertops, subway tile backsplash, carrara marble porcelain look-alike bathrooms, etc.) 

Still legally defined as an SFR, but in a practical sense, my addition makes the property a triplex.  Then the rent from the two additional units slightly decreases rent from the existing building portion to maybe 1600, but then I get 1500 for each of the two new units for a grand total from the completed building of about $4600/month against total costs of about 1600 per month (not including fix-its, but most of the building is new so this is minimal).

This is very profitable and I'm thrilled with the results.  Other than the initial mortgages to purchase the four SFRs, I haven't used any loans for construction, etc.  I have done this with two projects already and have run out of my investment capital.  If I save up for a year, I'll have enough to complete the third addition, then in another eight months after that, enough capital for the fourth addition.

I have tax filings, CPA produced financial statements, LLCs, etc.  What I need is capital to speed this up and I was wondering if any of you knowledgeable people out there can suggest some practical (I have a medium level of financial sophistication) way(s) for me to raise money that is realistic for me to do in order to scale this up more quickly.

Thank you in advance for your advice.

AJ 
« Last Edit: September 29, 2014, 09:52:24 PM by CardinalCowboy »

Hotstreak

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Re: Help Establishing an Addition Construction Credit Facility
« Reply #1 on: September 30, 2014, 09:40:07 PM »
You sound highly leveraged, and it also sounds like you're low on liquidity.  The renovated properties sound like they are cash flowing, but the single tenant properties may not be.  Regardless of how the two renovated properties are doing, a loan at this point seems speculative, and add in construction.. I wouldn't bet on getting much in the way of a business loan.

What does your personal balance sheet and income look like, are there any sources of collateral you haven't tapped?  Are you willing to sell a share of a property to an investor, or take hard money?  Also, if your rentals are appraising significantly higher than when you bought them, you might be able to get some cash out there, if you have a bank that's comfortable with that kind of cash out on an investment property.

Good news is, if you don't get the financing, you only have a year to wait.  That's not too bad, in the grand scheme of things.

CardinalCowboy

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Re: Help Establishing an Addition Construction Credit Facility
« Reply #2 on: October 03, 2014, 09:01:09 PM »
Thanks RobbyJ for the response.

Yes I tried to leverage as much as possible.  At purchase time, before any renovations that would increase value, one property is at 5% down, two are 20%, and one is 25%.

All properties are cash flowing well.  For the two completed addition properties, one at 2800, the other at 4000 per month.  For the no addition properties, 300 and 175 per month.  Numbers are after all expenses, including PITI

Personal balance sheet is no debt, but less than 30k cash.  No collateral to tap.  Yes willing to sell share of property to investor.  Yes willing to take hard money.  Yes properties appraise much higher once additions are complete, like in the 450k or 500k range.

Difficult part is coming up with all construction costs in advance.  I'm looking into construction loans now, but realize banks are still kind of conservative with this type of lending now.