New Construction Real Estate Development Business Plan

There are a lot of benefits to getting involved with construction deals. As Chris Somers noted in a conversation with Ian Walsh, which you can watch here, there are some key points to consider when looking at a new real estate development business plan.

First is the amount of upside. Certainly, those who know what to buy and where to build can make boatloads of money from these projects. And, in addition to cash made from the deals, they can help investors establish themselves as integral members of the community. People who build useful properties and create temporary construction jobs for local residents can boost their reputations, which can pay off down the road in a number of ways.

Nevertheless, making money on new construction projects is difficult these days. There is a lot of competition for those deals, and the margin of error is a lot smaller than it is on your typical flip—meaning your overall strategy, planning, and execution need to be incredibly sound.

I have access to amazing resources that I would like to share with you, so that you have all of the tools you need to build a sound real estate development business plan. I have interviewed real estate developers for my podcast, The Best Ever Show, who know how to find the right locations to build, figure out when building should begin, have trustworthy contacts in the construction business, and understand how to legally navigate these undertakings.

If you want to learn more about new construction opportunities, feel free to get in touch with me by clicking here. If you are ready to get to work, it’s time to reach out and schedule a planning session so we can start making money together.

Also, I invite you to check out both volumes of my real estate investing book, and to download my mobile app, which makes it easy to keep up with my daily podcast.

city skyscrapers

Four Tactics to Buy a Large Commercial Property as Your First Investment

Investing in your first property can be a nerve racking experience. Whether you’re house hacking a duplex, rehabbing and renting a single-family, or buying a turnkey four-unit property, the novelty and your lack of experience will make for an interesting yet exciting first couple of months, or even years.

 

Regardless, most real estate investors start small and either remain that way, or gradually progress to larger and larger projects. Brian Murray, who owns over $40 million in apartments and other commercial assets, did took the exact opposite approach. Rather than start with a single-family, a four-unit, or even a 20-unit, his first investment was a 50,000-square foot office building.

 

In our recent conversation, Brian explained four reasons why he was able to successfully start his investment career with such a large property and why you can do the same, regardless of your base skill set.

 

#1 – Creative Financing: Assume the Loan

 

In 2007, Brian purchased a 50,000-square foot office building for $836,000 which was his first investment. Since Brian is a go-getter, not only did he go straight for a large property, but he went for a large AND distressed property. “It was in pretty bad distress,” Brian said. “It was less than half occupied. It was not well maintained, but it was very well located.”

 

Being Brian’s first investment, he didn’t have much money and had no prior real estate experience. As a result, he was rejected from the banks and was unable to secure a loan. But that didn’t stop him. Using creative financing, he was able to get the deal done by assuming the seller’s existing mortgage, which was $730,000.

 

Related: Pay Attention to These Five Loan Components to Maximize Your Apartment Returns

 

#2 – Credits for Deferred Maintenance and Discrepancies

 

For an extra level of creativity, Brian was also able to negotiate credits for deferred maintenance.  “One of the things I negotiated was to get credit at closing equal to the value of their reserve replacement,” Brian explained. “They had a couple of other reserve accounts with the bank that I was able to negotiate credits at closing in that amount.”

 

With the combination of assuming the mortgage and getting credits from the seller, Brian was able to take over the building with very little cash out-of-pocket.

 

However, Brian didn’t stop there. During the due diligence phase, he uncovered discrepancies between what the contract and leases said and what he actually saw at the property. For example, “one of the things that was wrong was the rent roll. There were tenants on the rent roll that just plain didn’t exist. There were spaces that the rent roll had indicated were occupied that when I went and actually physically toured the property, I realized they were actually vacant.” Brian was able get more credit from the seller for things that he discovered during the phase. He said, “It all worked out to keep that initial amount of cash [out-of-pocket] fairly limited.”

 

This anecdote supports the best ever advice of always doing your due diligence.

 

#3 – Pay Attention to Decrease Expenses

 

One of the main reasons why this deal was so successful is because Brian was able to quickly decrease excessive expenses and make the building cash flow positive after year one. The two main expenses he cut were the utilities and the salary of the building’s superintendent, which he accomplished in one fell swoop.

 

At the time of purchase, the property had one employee – a superintendent. The superintendent was responsible for coming in early, opening up, and prepping the space. “That means,” Brian described, “unlocking the door, turning the lights on, checking the bathrooms, doing a walk through, and then just general maintenance in terms of landscaping [and] cleaning.” In this particular case, Brian discovered that the current superintendent wasn’t doing a whole lot. In fact, he had a woodshop set up and was doing side work during the workday! “The owners were from outside the area and weren’t keeping an eye on it, [so] the place looked terrible. There was trash all over in the front yard [and] there was no landscaping to speak of. It had really been let go.”

 

On top of that, the superintendent wasn’t controlling the heating and cooling system. “He literally would crank the air conditioner on high 24/7,” stated Brian. “If the tenants were too cold, they had to open their windows and let some warm air in.” In the fall, the superintendent would do the same with the heat. In short, money was literally being pumped out the window every day!

 

On Brian’s first day of ownership, he confronted the superintendent. “I asked him how to control the thermostat, and he said, ‘there’s no way to adjust it. It’s locked.’ I said, ‘you can’t tell me how to control the temperature?’ and he said, ‘no, I don’t know how.’ So that was his first and last day in my ownership.” Brian called the thermostat manufacturer and they walked him through how to unlock and program the thermostat.

 

After relieving the superintendent of his duties, Brian saw a substantial decrease in expenses. “I was able to program [the thermostat] so it turned down at night [and] turned down on weekend. By keeping a close eye on that, I cut the utilities bill in half in the first year. By cutting the salary of a superintendent [and] by cutting my energy bills in half right out of the gate, the building turned cash flow positive.”

 

Related: Four Strategies to Reduce Your Largest Business Expense – TAXES

 

#4 – Reinvest Profits to Boost Property Value

 

After turning the property cash flow positive after decreasing his expenses by cutting both his utility bill and superintendent’s salary, Brian didn’t pocket the extra cash. Rather, he reinvested it right back into the property. “That’s another thing I stay true to to this day: I always plow the vast majority of the money back into the properties and keep reinvesting back in. That’s a part of how you build value.”

 

With the decrease in expenses and reinvestment back into the building, the “property’s probably worth $3 million.” That’s more than triple the original purchase price of $836,000!

 

Related: The Four Overlooked Benefits of Real Estate Investing

 

Conclusion

 

Brian’s Best Ever advice is to “think big. Don’t be deterred … Don’t be intimidated by those biggest properties.” He said, “I think people are intimidated by the larger properties, but they really shouldn’t be because the bigger you go, the more flexibility there is in how you can finance it. There’s a lot more opportunity that opens up to you.”

 

This advice manifested from Brian’s first ever real estate purchase – the 50,000 square foot office building. During this experience, he learned:

 

  1. Creative financing techniques with little to no money out-of-pocket when you can’t secure a loan from a bank
  2. To negotiate to get credits from the seller for deferred maintenance
  3. To check contracts and leases against what’s actually happening at the property, and negotiate credits if you find any discrepancies
  4. How to investigate to find ways decrease expenses
  5. Reinvesting profits back into the property is how you quickly build your net worth

 

After applying these lessons, Brian’s more than tripled the value of his first property, and he was able to expand from one property and zero employees to 30 properties and 16 employees in less than 10 years.

 

Did you like this blog post? If so, please feel free to share it using the social media buttons on this page.

 

 

Also, subscribe to my weekly newsletter for even more Best Ever advice: http://eepurl.com/01dAD

 

                       

If you have any comments or questions, leave a comment below.

 

 

men on a construction site

How To Analyze New Construction Deals

 

New construction expert Chris Somers goes into key points when his clients are looking at new construction.

  • There is a lot of upside as well as potential risk involved.
  • Investors can make boat loads of money if they make the right decisions on where to buy and what to build.
  • The execution on the project is crucial as the dollar signs are usually much larger than your average flip.
  • The margin of error is much smaller than on a flip so the planning and overall strategy need to extremely accurate.

 

Content by: Ian Walsh, Hard Money Bankers LLC

 

city at dusk

How a Billion Dollar Real Estate Developer Qualifies a Deal

Mark Mascia, who has 12 years of experience in real estate developing residential units, retail and mixed-use properties, and office space with a total portfolio value approaching $2 billion, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

In a conversation with Mark all the way back in 2015 , he provided his Best Ever advice, which is a sneak preview of the information he will be presenting at the Best Ever conference.

What was Mark’s advice? He explained the most effective way to qualify a development deal.

 

How To Best Qualify a Development Deal

 

The main way Mark qualifies an individual development deal is to determine if it fits his company’s long-term criteria. He determines the “likely scenario” and the “worst-case scenario.” He wants to be comfortable that even the worst-case scenario still meets the investment objectives.

Advice in Action – For a development deal, as with real estate investing in general, so many things can go right, but so many things can go wrong, too. Some issues you have control over and some you don’t, says Mark. You really have to protect yourself by setting the tone with the worst-case scenario and making sure that it is something you are happy with before you start.

By determining the “likely” and “worst-case” scenarios, Mark typically reaches out to the team in the specific market, not just to verify that the deal source is credible – by performing background checks and checking all references – but also to learn more about the market.

Each individual market is the same in a lot of respects – they are in America, so there will be a lot of the same brands, people, and demographics. However, each market is much nuanced with government restrictions, incentives, and other important factors differing from market to market. Mark always starts with a due diligence team of local professionals who have done at least three projects in a similar market. He then brings them to the table to ask them the important questions. While Mark and his team are the experts in the development process, they aren’t experts in an unfamiliar individual market.

If they don’t have a direct connection or can’t find an expert in a specific market, Mark’s group won’t invest. The benefit of having this nationwide investment approach is that they can be very selective and don’t have to do every deal that meets their criteria. Most of what they look for is a diamond in the rough, says Mark, so they look at an immense number of deals to find the few that work for them.

Advice in Action – The key to finding local experts is networking. Everything in Mark’s business is about networking. You would be surprised that even on a national basis that the real estate industry is quite small. There are many people, but it is a small world, so everyone is two or three degrees of separation from the person you need to meet. There are many national organizations where Mark knows a lot of people who also know people in the local markets in which he invests.

Mark will go through those avenues to find local people that his friends or people he has worked with in the past can refer. If that fails, Mark looks at permits that are being pulled in the local area and reaches out to the individuals involved with those properties.

By networking, you aren’t paying to learn, explains Mark. The people you meet have already learned everything and have made all the mistakes that need to be made in order to move forward. Your goal should be to leverage their experience the best you can.

Conclusion

 

The main way Mark qualifies a deal is to determine the “likely scenario” and the “work case scenario” and see if both outcomes fit into his long-term investment criteria. If he isn’t comfortable that both scenarios will meet is investment objectives, he won’t invest.

To determine these scenarios, Mark relies heavily on his boots-on-the-ground team members in the local market. If he doesn’t have a direct connection or can’t find an expert in a specific market, he won’t invest.

 

 

Want to learn more about real estate development, as well as information on a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

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