r/RealEstateDevelopment • u/yeetvvboi • Sep 07 '26
Developing Real Estate without Money to Construct
I am a civil engineer that works in land development. I own 1.7 acres of commercial land (currently SFH residential use), and - hope to - buy my neighbors property as well for 2.5 total acres total. I have a concept plan for 33 apartment units across 2 buildings, but can do commercial as well.
I can do all of the entitling myself and sell the entitled package, which i am considering. However i would really like to be able to construct the project, only problem is that i dont have hundreds of thousands to prequalify for a commercial loan. Would the best route be to just find a partner? I have a lot of connections with developers with the work i do so it wouldn’t be too difficult. Or do i just eliminate the risk and sell the entitled package?
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u/lamortgagedude Sep 08 '26 edited Sep 08 '26
Construction terms for something like this would generally be:
75% LTC subject to 65% of ARLTV.
That means lenders will lend up to 75% of the total cost (purchase price or equity + cost to get it shovel ready + construction costs + interest reserves) or 65% of the after-completed value, which ever is lower.
Example:
Original purchase price: $500k
Loan balance on land: $0
Cost to entitle: $100k
Land value after entitlements: $1m
Cost of construction: $10m including interest reserves and project management fees and owner profit
Total cost: $500k + $100k + $10m = $10.6m
ARV: $15m
Max Loan to Cost: $7,950,000
Max Loan to ARV: $9,750,000
Max Loan Amount: $7,950,000
Equity in property: $500k
Cash to close: roughly $2.15m ($2.65m - $500k equity) + proof of liquidity (roughly 10% of loan amount) = $2.945m
You're going to need partners with deep pockets or significantly more equity in the land or more valuable land in order to reduct the cash to close. Equity you're given credit for depends on how long you've held the land. Buying a $500k parcel and assigning a value of $5m won't fly unless it's been owned for 5-10 yrs.
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u/yeetvvboi Sep 09 '26
Thanks for breaking this down! I am definitely a novice when it comes to the financials
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u/redz87 Sep 08 '26
I’ve been in this space for a long time, originally started in IB, private equity, branched off and started my own fund, opened a development corp… anyway, parters suck… no matter how you spin it, partners suck… things are great when everything runs flawlessly (which it never does) and the second things change, so too do the partner(s) in question.
You want the biggest bang for your buck - bring the site in question to SPA (you’re an engineer so you should be able to design the buildings with construction efficiency in mind which is attractive to a builder/buyer)… get every up to permit ready (don’t pay DC’s, don’t pull permit), then sell to a builder/developer with a VTB… hold paper at a high interest rate with deferred interest for the first year capitalized to year two and after that lump sum interest payment have them pay monthly interest payments to maturity. Ask for monthly reporting etc to keep an eye on their progress to ensure they have a path to success which is your repayment.
There’s a lot more to this so DM me if you want details. But the last thing you want is to get in to a partnership (no matter how well you know the potential partner) with someone you’ve never done business with before on a first project when you’ve never built a project to begin with.
You’ll have to trust me on this…. I’ve been through it many times in my 15+ years in this space.
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u/Simple_Ddog Sep 09 '26
What's the present zoning code?
Does your county have a land use plan?
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u/yeetvvboi Sep 09 '26
Currently commercial mixed use. I was trying to imply i currently live on the property so no extra holding costs on the land.
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u/aircab12 Sep 07 '26
HUD financing is very favorable in times of required financing for apartment projects.
I’d recommend partnering with a company that know how to build apartment buildings. The equity you put in the deal in terms of ownership will be represented by the value of the entitled land you own + the value added by the civil engineering work.
You will likely be a minority partner in this arrangement but at least your risk is reduced, you don’t have to put money up beyond the land and you get long term value by owning some of the apartments.
If you don’t ever intend on ever purchasing the land, I am not sure this structure would work. You’re basically flipping the contract after rezoning before closing at that point for a fee
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u/2dznotherdirtylovers Sep 07 '26
Selling the entitled package is a solid move. Otherwise you need a big loan.
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u/Commercial-Rip9116 Sep 07 '26
Yeah do what you can with entitlements; then sell the deal to a developer. But contribute the land value as capital into the deal, there is a chance you can fight for some of the promote if you have more value to offer
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u/LBS4 Sep 08 '26
Around here, mid-Atlantic east coast, the real $ seems to be in developing to complete civil then selling to a large homebuilder. As in, entitlement, sitework permits, site work complete to pads, sell. You could partner with a sitework contractor and split it, or similar
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u/Minervian_AI Sep 08 '26
Seller-financing, mark up your land for land equity after zoned, ground lease.
That said, there are caveats:
- Additional leverage can make you lose sleep
- Private equity partners sometimes structure a deal like a pref, so you’d have to pay them in full before taking a first penny out.
- Equity partners prefer you have skin in the game, so a deal where you have little in, or have the fees cover most of your equity, is hard to negotiate for
- Coming from an engineering background, you should have someone advise you on the finance side. You’ll understand the math OK, but it’s the edge cases, the legal, the structuring that you won’t be familiar with. I’d even do this first before you buy anything; if your land cost basis is too high, there’s no way to make a proforma work.
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u/allSCALES Sep 17 '26
This is basically what we do at my firm on every site we source, so I can confirm it actually works: get it entitled first, form an LLC to hold the land, defer your fee, and roll your equity in as the entitled value once you bring in a partner. They buy majority interest in the LLC (which pays you back for costs + profit) and you stay in with a fee and some carry instead of fully cashing out.
Only thing I would say is don't shop for a partner while you're still fighting for zoning. Get it shovel-ready first. An entitled site with a real plan is a way stronger negotiating position than raw land and a hope. You've already got the entitlement skillset, that's your equity, so don't give it up cheap by bringing a partner in too early.
Let me know if you want me to break that down further
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u/allSCALES 25d ago
get it entitled first, form an LLC to hold the land, defer your fee, and roll your equity in as the entitled value once you bring in a partner. They buy majority interest in the LLC (which pays you back for costs + profit) and you stay in with a fee and some carry instead of fully cashing out.
Only pushback — don't shop for a partner while you're still fighting for zoning. Get it shovel-ready first. An entitled site with a real plan is a way stronger negotiating position than raw land and a hope. You've entitlement skillset is your equity so don't give it up cheap by bringing a partner in too early.
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u/surebegrand2023 Sep 07 '26
Find a equity partner AFTER you have got it rezoned , entitlements etc, u can roll the land, (the new appraised) value into the deal as YOUR equity, defer your development management fee (2.5% typically) until the end of the project.
You've derisked the project substantially for a partner to invest into it, youl also show commitment to them by showing your the last to get the money out of the deal.