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Working with a Builder

Colin Forrest

Investing with Integrity
Registered
Joined
Aug 27, 2012
Messages
76
I originally purchased vacant land in the East End of Barrie which was legally severed into two 5000 ft2 lots. I sold one part to a builder who now wants to purchase the other lot which I own. They have the construction financing arranged to begin building on their lot, but will need to get the construction completed to a certain stage (I think once framing is done) before the remaining funds are released. This is when they will have sufficient monies to purchase my side. I've met with the builders, reviewed their portfolio and feel confident that they will be able to complete homes on both sides - especially given the location and market conditions. My question is this; "should I allow them the begin construction on my side before they close on the property with me?"

This is their company: Community Builders located in Barrie Ontario.

I guess I feel I am aligned with their mission and would like to help them in any way I can. That said, this is business and I do want to make sure that I am not walking onto a mine field.

Here are a few ideas they have come up with:

Idea 1:
Community Builders (CB) could build a house on the second lot for Colin at the same time we build our house on the other lot. CB would be willing to hold off on starting construction on our lot until Colin's house was ready to start. If we did this CB will be taking on extra costs related to financing charges, but by building both lots together, it will allow for hard and soft cost savings on both houses which may offset some of the extra costs that CB would incur for the delay.
The House to be built would be a custom home based on CB Design, including legal second Suite, approx. estimated costs as below:
Hard Costs - $558,195
Soft Costs - $60,207
Management Agreement - $85,000
Total Costs: $703, 402
Appraised Value as if completed: $1,150,000
Estimated Sale Value once completed: $1,295,000
For this scenario Colin would be responsible for the following:
1. maintaining ownership of property and renting it out until he is ready to return to Barrie or alternatively could sell it on his own at some point in the future after the construction was completed.
2. Securing the construction Funding for the build in his own name as he will be considered the owner and builder on the site. (Though we can help arrange this funding through our construction lender Foremost Financial)
3. entering into a project and construction management agreement with Community Builders.
Community Builders would be responsible for the following:

1. Connecting Colin with our construction lender Foremost Financial to arrange construction funding
2. Project & Construction Management from planning to completion
3. Property Management after completed, through Signature Suites or Redwood Park Communities until colin moves back or chooses to sell.
Idea 2:
Colin fully partners with Community Builders 50/50 to develop this lot. Colin provides the land, CB secures the construction funding jointly with Colin. CB would project manage and construct the house, and together as a team we either hold and rent the property out and/or sell the house when the time is right. Upon sale Colin receives the value for his lot plus his 50% portion of the profits from the sale.
Idea 3:
Colin sells the lot to CB and holds a VTB on the land and signs a postponement agreement to postpone his first position on the mortgage into second place behind each construction draw that is received.

Any thoughts or suggestions you may have would be much appreciated.
 

Thomas Beyer

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REIN Member
Joined
Aug 30, 2007
Messages
13,881
Anything creative needs to be SUBSTANTIALLY above cash value .. say 25-50% due to risk especially if you are in second position


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Colin Forrest

Investing with Integrity
Registered
Joined
Aug 27, 2012
Messages
76
Thank you Thomas for your feedback. My wife (the smart one) doesn't feel that we need to take on any unnecessary risk right now. Since we own the land outright she correctly reminds me that we need to be patient.
 
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