Funding is on the heart of each real estate project. In my previous article I discussed the disparity of economic advantages between direct money investment and bank financing. Profit is maximized when bank financing can be obtained, so positioning your project in order that it may possibly achieve bank financing has a direct impression on your backside line. Skilled documentation may have a direct influence on your bottom line, as it may well enhance the financial phrases and rates that lenders are keen to supply, making your project more or less profitable.
So, how can you best position and construction your project to achieve effective bank financing and enhance profitability? Following is a summary of what we consider to be "the important thing to effective project financing".
Create a professional plan
Describe your real estate project with a concise and professional document. It will assist save time in the underwriting process, and supply a clear understanding to underwriters and bank representatives in order that they'll more easily facilitate and assist your funding request. While projects range in sort, dimension, structure and scope, the next components ought to be included in most plans:
Executive summary - Typically a 1-2 page narrative description of the project outlining the basic particulars and monetary highlights.
Location particulars - Describe and illustrate the placement, specifics and advantages of the project web site and area.
Visible illustrations - Web site survey, website plan, elevations, ground plans, renderings and different materials that can help visually describe the project financing companies
Monetary Pro Forma - Demonstrate the makes use of of funds, sources of funds, project prices, operating projections, cash circulate and all different financial particulars of the project in knowledgeable manner that can be simply interpreted by bank representatives and underwriters. We advocate preparing a 1-page monetary summary of the project in addition to the intricate details.
Capitalization Plan - Narrative that summarizes the funding construction, strategies and approaches of funding the project.
Market Research - Demonstrate the present and projected value of the project. Describe market, sales and/or lease trends, competitive atmosphere, supply and demand factors, and other market conditions.
Team Bio - Describe the project workforce and talk about their education, expertise and contribution to the project.
Attachments - Purchase agreement, leases, architectural drawings, bids, contracts, and different supporting documentation.
Your plan is stronger and more effective while you embody third-party validation to the lender. This will additionally help facilitate the underwriting process and make your project more favorable to the lender. Third party validation can be demonstrated in the form of varied documents which might be offered to your lender, including:
Comparative market analysis - Demonstrates the viability of the proposed sales and/or leasing strategies.
Project feasibility evaluation - Demonstrates the viability of estimated project prices, revenues, expenses, money movement and working projections of the project.
Market feasibility analysis - Demonstrates the viability of the project given market developments, provide and demand, absorption rates, propensity of gross sales and different market factors.
Appraisal - Demonstrates the present and/or future worth of the project.
Find the correct funding sources
When your project is ready to be offered, begin with contacting your local banks, then search for regional and nationwide lenders that fund related kinds of projects. Ensure you understand their financing programs and be certain that the monetary details of your project wall inside the lenders' basic financing parameters, such their loan-to-cost ratio (LTC), loan-to-value ratio (LTV), debt service coverage ratio (DSCR), internal rate of return (IRR), return on investment ratio (ROI), capitalization rate, and such.
Current your plan professionally and close the deal
In my expertise, an expert multimedia presentation at all times enhances the ability to acquire funding. You possibly can merely present paperwork to your lender; or you can meet with the lender in person, professionally present your project, then present the professional documentation at the meeting. The latter is all the time desirered over the former. Be prepared to answer questions concisely and to provide back up information and paperwork that validate your assumptions.
Follow up usually to ensure your loan request is effectively processed. If and when an preliminary term sheet or letter of intent is offered by the lender, have an legal professional evaluation totally and work directly with the lender to consummate a loan agreement and shut the deal.