I just did an AMA on becoming a RE developer. This is a follow up post to how I did my own deal as an analyst...
They laughed and told me "sounds great, good luck".
Searching loopnet on a regular basis, after a few months I found a piece of land ideal for my target market and product (multifamily). I contacted the broker about the land, got him comfortable with me, and asked him to be my dual agent. This way (earning double the commission) he is my ally and also is motivated to sell to me as opposed to another (more qualified) party.
I told my office what I wanted to do so that there were no conflicts of interest, or any claim in the future to my deal. They laughed and told me "sounds great, good luck". I don't think they really thought I'd succeed.
The sellers were understandably leery at first and so I offered to give them a presentation of my plan and monthly progress updates. I put together an OM complete with a rudimentary site plan which I did in excel, floor plans, market comps, budget, etc. - same type of package I used for investors later. It worked and they agreed to sell. We settled on $1.4M. I put down $20,000 earnest money, which I had from a rental property I sold, a 6 month DD period, and $10,000 going hard at 4 months. This is a secondary market so those terms worked, I'm sure it'd be different in a primary market.
So I got the land under control and proceeded to get city approvals. Working with the neighborhood was a bitch. A lot of politicing and meeting with the city several times to get them on my side instead of the neighborhood. Instead of a zoning change the city agreed to a variance allowing me to build the density I needed.
No one trusted me
Concurrently with entitlements I started pounding the pavement with my pitchbook/OM. I connected with people on linked in, contacted wealth management companies, and asked for referrals for which I offered percentage compensation. No one trusted me except a few larger development companies with capital, which offered to codevelop with me. I told groups I was confident I would get city approval but we would make the agreement contingent on that. Having skin in the game (I told them I'd contribute all I could afford - $65,000 or 1%) was extremely important to everyone I talked to. I took out a home equity loan for the balance above my $20,000 plus $10,000 I had saved up.
They sent me a term sheet: $150,000 for sourcing, payable upon financial close. They would guarantee the loan. The equity capital stack is this:
- $6.5M equity total
- They will raise 90% and supply 10%
- Of that 10% I contributed 10% but got credit for 20%.
- I also got 10% of the dev fee.
I had a GC partner and architects to get to a general budget and concept, but they ended up using their own. They are the managing member but all major decisions go through both of us.
With my limited funds I had gotten a survey and had architects to do a concept plan but when the partner signed on we proceeded with the rest of the due dili and released the engineers and architects to proceed with SDs and DDs.
I'm still employed because development is so fickle and expensive, but maybe I'll do this full time someday. In the meantime it's nice to have some extra cash and credibility!
Hope this helps others break off on their own! Feel free to ask me anything.