Starting business in Real Estate

[sethdamien]

Hello, Im from the Philippines, Im currently studying to become a real estate developer - I understand its capital intensive. However, for my first investment, im planning on building a 4-door apartment building. I can have it built for a meager 150k and loan it from a bank.

I already have a contractor. I'm also aware of the local codes, pertinent taxes, market rental rates, etc, all that's missing is capital.
Im thinking of dividing the loan between two banks to lessen the length of time for evaluation.

Now the what if's:
-If however, profit does not meet the maturity date, can the contract include a clause that allows extension of dept period?
-in the worst case scenario, if the business does not yield as expected, can the building itself be the collateral and operate business as usual?

In your opinion, what is the likelihood this debt funding will be accepted by banks?

Thank you for giving the time to help!

[Freelancier]

You'd need to not only show you have the down payment in cash, but also the money to support the loan from current income cash flow. Promises of rent from these units you are building doesn't matter to them since you have no history in the market. Once you have a history with them, they'll be more willing to look at market rentals in the area to support your case. If you were buying an existing building, they could look at the rental history from that building as part of the package, but since it doesn't exist, it's all guesswork and they're not excited to guess when it comes to someone who has no history with them. So... odds are going to be based on how much money you have in hand and how much income you make to support the loan.

As for maturity dates... you renegotiate those when it becomes an issue and not before. Basically, banks don't usually want your building, they want the cash back, so they might give you more time to work out alternative financing... or they might not, but they'll never negotiate away their clauses up front with someone who has no history with them... and even bringing it up with them would be a HUGE red flag, so don't.

[sethdamien]

Thanks! I had this venture running in my mind for quite some time...

What you said is just a confirmation of my fears... such that - I enter the bargain empty handed and expect full funding which is highly unlikely.

i guess i'll stick to what i know-for now, create my building design business and earn enough so i can have a down payment for my first real estate project. Thank you!

[Paul]

If you were buying an existing building, they could look at the rental history from that building as part of the package

Heed this advice and try buying an existing building first. Completely different deal for financing. Also, once you own a building you become more viable for other projects.