So since my last post much has happened but has happened slowly. Here’s a recap of what I’ve done since my last message to you all.

March 19th: I added General Liability Insurance. This is a mandatory insurance policy for all builders in the state of New Jersey. Later down the road as I start construction I will need to add a Builders Risk Plan. In my projection I had this listed out as a combined $10,000. But my guy got me a great price, thanks Kevin! General Liability Insurance was a total of: $2,576.86. Builders Risk Insurance will run me approximately $200 per month during the entire construction phase, but will have a proper number for you once I get my quote after my plans are approved.

March 25th: I submitted my plans for approval. I wasn’t able to submit these plans for approval until I had General Liability Insurance. Initially I was expecting roughly 2 - 3 weeks for my plans to be approved, but instead it took 4 weeks for the City of Newark to come back to me and say the plans were not approved. The reason for disapproval was simply because the drawings needed more detail for the foundation since our land is slightly sloped.

April 30th: Finally I got in touch with my Architect 5 days after finding out the plans had not been approved, only to find out he was in Brazil for the next month for vacation. Luckily he responded to my email immediately after finding out the plans weren’t approved. He asked us to send over the exact detail that the City of Newark mentioned needed to be changed and he could turn around and send us the updated plans in 1 weeks time.

One Week passed by only to find out the architect had not gotten to the changes. Instead it took him a full 4 weeks from this date to get back to us with the updated plans. Luckily we didn’t have to pay for the changes that needed to be made to the plans as this fell on the liability of the Architect.

June 2nd: With the architect out of town we had to get the plans sealed by another architect. To get someone to agree to this was a difficult task since they generally create the plans and then seal them.

June 24th: We finally found someone to seal the plans at no cost.

June 26th: Received the sealed copy of the plans and resubmit them to the City of Newark for approval. Fortunately they don’t have to go through the entire approval process again, they only have to pick up from where they left off. Unfortunately next week is a short week with the July 4th weekend, which I believe means I won’t get approvals for my plans until the following week.

Blessing In Disguise: On a good note, with the way the market is currently it has held us off from starting construction too soon.

Financial Update: Once they plans are approved I can submit them along with all financial documentation for loan approval.

The long awaited construction cost and profit projections are finally in!

When asking for a construction loan from a bank, they will often ask you to come up with a projections for your cost and your net profit. So over the past week or so, I spent some time getting some bids in for certain portions and talking to my mentor about certain costs and this is what I’ve come up with.

On the conservative side we’re looking at a net profit of $65,000 over the course of 6 months. Not bad in my mind, but many ask do you really think its worth the hassle for 6 months to construct and sell a residential home only to make $65,000 on it.

Here’s my answer to that question: HELL YES!!! Because for me the goal is not only to be doing 1 of these a year, but to get to a point where I’m consistently doing this with 5-10 properties a year! I’m not trying to be a small developer who does 1 property a year, nor am I trying to be the next Toll Brothers or Pulte Homes - I know what my limits and boundaries are and will stay within them, so I don’t stretch myself to think and end up foreclosing on my properties.

Attached is a cost|profit projection sheet including all the costs I will encounter with the exception of my interest paid during the construction phase.

All my numbers are fairly conservative, so if I do this right I should make a minimum of $60,000 and if do it like a Champ I can make upwards to $100,000.

Lets wait and see!

construction-projection.xls

As I may have mentioned before, there is a lot of paperwork involved in getting approved for a construction loan.
Here is a list of all the information you should have ready when looking to acquire a construction loan:

• Complete Credit Application - provided by lender
• Complete Personal Financial Application - provided by lender
• Previous 2 years of Federal & State Tax Returns
• Copy of Deed or Contract of Sale
• Name, Address & Phone Number of Applicant’s Attorney
• Description of specific project and overall development
• Present use of site; status of existing construction project
• Preliminary building and site plans with construction specifications
• Approved final plans for project *** (See note below)
• Projected cost breakdown, including direct building cost, land site preparation, paving, interest, taxes, professional fees (and other “soft costs”), brokerage fees, etc.
• Name and address of general contractor (if not applicant)
• Name, Address & Phone Number of Architect

*** I still haven’t submitted my plans to the City of Newark for approval. In order for me to do so - I must be able to present a Certificate of Liability Insurance. For me to present a Certificate of Liability Insurance I must show the insurance agent that a bank is going to approve my loan. Its crazy how every little thing is directly correlated to another!

So its about 2AM and I’m writing this post out of frustration and challenges that were faced earlier this week. Back in October I did some due diligence and researched several local banks with regards to finding a construction loan. I knew rates were going to change between then and now, and I knew getting the loan was going to be a lot of paperwork. What I didn’t know was all the challenges I would face.

When we bought the land we purchased it in my and my two cousins names, knowing we were looking to apply for the construction loan in my uncles and my name. What I didn’t know at that time, because I didn’t have a guide like the one I’m writing for you all, is that when applying for a construction loan the land has to be in the name of the person applying for the loan!

Despite my name being on the land, my uncle can’t co-apply for the construction loan with me, but if it were a regular mortgage it would be fine. You might be thinking, what sense does that make, well I don’t know it doesn’t make sense to me either!

Now I have a few options:

• Option 1: Apply for the loan in my name and one of the other land owner’s names. My credit is excellent and strong - but my financial power is not as strong, so that would be dependent on the other applicant.
• Option 2: Transfer the deed to the new LLC name. This is a viable option, but if I do this, I have to also file the appropriate paperwork to make my uncle a partner in the LLC. This again is a tedious process and cost about $125.00 + the cost to transfer the deed.
• Option 3: Transfer the deed to my Uncle’s name or add him to the deed. Again a tedious process and cost additional money.

Currently we’re going to attempt Option 1 and see if me and one of my cousins get approved for the construction loan.

The estimated price including land and construction that this project will cost is approximately $300,000. Below is how much has been spent to date:

• Land: $95,000
• Closing Cost: $4,031.83
• Architectural Drawings: $2,800
• Plumbing Permits: $3,200
• Business License : $125.00
• City of Newark Contractors License: $125.00
• New Home Builders License: $205.00

Total: $105,486.83

According to my total project estimate with cost of land I’m 1/3 of the way there! Lets get ready to roll!