How would I Obtain Capital for Starting a Business - Tilted Forum Project Discussion Community

NoSoup · 05-16-2006, 12:35 AM

I've been hunting around the net for a bit now, and I've looked at so many sites trying to convince me to pay a fee to find investors my eyes are starting to water.

Basically, I am extraordinarily interested in starting a business - specifically a business involving real estate - that would involve purchasing properties outright.

Unfortunately, I don't have the capital that I would need to purchase these properties free and clear up front, and financing them may significantly decrease the profits.

Does anyone have any idea where I would find people that are interested in an investment opportunity? Can anyone recommend specific sites that would help me find investors?

Additionally, although I understand most small business investments are inherantly risky, because I am using the funds to purchase real estate, the chances of losing money are greatly diminished, although not impossible. However, I'm certain that my years of experience in the field, in this particular area, will reduce the chances even further.

I have no idea where to begin, really.

Unfortunately, small business loans are pretty much not an option for me for two reasons. First of all, I'd prefer not to finance the property, and secondly, I likely wouldn't qualify. I have very high credit (800+ scores) but I have two factors working against me. The first is that I am paid commission only from my current full time job, the second is that I recently switched companies, so although I have been in my field for a number of years, I haven't been with my current employer all that long.

snowy · 05-16-2006, 07:53 AM

From everything I've seen on Food Network about starting food-oriented businesses--network, network, network. Let your friends know you want to start a business, and get the word out to their friends. Someone you know will invariably know someone who's willing to invest.

I'm sure there are books about it as well. Try starting there.

NoSoup · 05-16-2006, 10:00 AM

I've considered that, but I would much rather not involve any personal relationships.

I'd much rather keep things simple and stictly a business relationship, rather than having mucky waters with friends/family.

Also, I'm looking only for investors - I would much prefer that I handle the business by myself, simply because I trust my knowlege of the market and the area.

However, I understand that it may be difficult to find an investor that is basically just willing to trust me to control their funds without them having any say, but I would imagine I am more likely to find that person if I look outside my network of friends/co-workers.

The nice thing is, providing that they are willing and able to finance the majority of it - although I do have some cash set aside - I would be happy to split the profits 50/50 with myself earning 50% and the investor(s) earning the other 50%. Because I won't be obtaining financing through a typical lender, I will have much, much more freedom in choosing properties and negotiating the sales price, so I would imagine that within a few years, they would have doubled their initial investment, providing things work out of course.

At that point, they would of course be able to continue their investment if they like, but eventually I'm hoping to reach the point of being able to finance the properties by myself, or at least a portion of them.

cyrnel · 05-16-2006, 10:55 AM

Ask what you're bringing to the deal.

Ideas are cheap. Money talks.

You either need rich trusting souls (they're all dead now) or you have to present your idea in a way that protects it while attracting investment. Not easy. The saying goes something like... "If you aren't the salesman then finding him is your first job."

I understand your desire to keep things away from people you know, but one-sided risk usually means seeking out family or friends. They risk the capital and you risk the relationship.

Cynthetiq · 05-16-2006, 11:18 AM

write up a business plan and shop it to investors. Where do you find them is the critical element.

you find them where ever you find them. I know that it doesn't help but it means that you have to meet and shake hands with people at mixers, meet and greets, maybe even going to speak to people already doing what you are interested in investing in, real estate offices.

DDDDave · 05-16-2006, 02:13 PM

NoSoup,

You know, I'm in the biz. What you want to do has been done before. In every town, every day. I hate to make it sound so easy, but put an ad in the classifieds... 'Wanted...real estate investor to partner on real estate deals' Your phone will ring off the hook. As you get older you will realize how much money is out there. Everyone is looking for a way to make money. You have the skills and an angle. You will need to have your ducks in a row, and have a 30 second 'elevator speech' ready. You will need to be able to state exactly what you want......you will get calls from a lot of peolpe in the same boat as yourself. But it only takes one true investor for your deal to fly.

Talk to a real estate attorney friend. (I know you know a couple.) This should be your first task. The attorney will know how to structure the deals and probably knows the investor too. (It might be him.) They way for the investor to protect his investment is for the property to be in his name. IMHO, you will need to do the first couple of deals on a 'fixed fee' basis. "We will buy this house for $65,000, fix it up for $5,000 and sell it for $90,000". "Mr. Investor, I will do this whole deal for you and charge you $5,000. You just need to show up at the closing with the check for $65,000" The attorney will make sure that the funds get disbursed correctly, coming and going. Agreed, it is not the best deal or the deal you want, but you need a track record. If that deal goes according to plan, there will be plenty of others.

What scares me is when you say 'financing them will significantly decrease the profits' Word to the young....when an investor is investing hard money he is not looking for a 10% return, he wants to double his money. In our business, interest expense is the cost of doing business. I don't even do a deal unless I can make 50%. Agreed, I do 1 for every 50 that I look at but it saves me spending time and effort on a deal that will make me 5 grand. Every deal requires the same amount of work, so only do the ones that will make you real money. A RE investor does not want you chasing every deal in town just to make 15%. If you cannot afford to pay 10% interest on the money for 6 months and still make good money, pass on the deal.

Number one rule.....not location, location, location. DON'T FALL IN LOVE. If you fall in love you will do irrational things.

Good luck. Let me know.

NoSoup · 05-17-2006, 11:44 AM

Quote:

Originally Posted by cyrnel

Ask what you're bringing to the deal.

Ideas are cheap. Money talks.

You either need rich trusting souls (they're all dead now) or you have to present your idea in a way that protects it while attracting investment. Not easy. The saying goes something like... "If you aren't the salesman then finding him is your first job."

I understand your desire to keep things away from people you know, but one-sided risk usually means seeking out family or friends. They risk the capital and you risk the relationship.

Agreed.

As far as what I'm bringing to the deal - my ambition, and more importantly, my experience in the market and all the knowledge that comes with working in the business - and having contacts nearly everywhere in this are. Not to mention some money. I don't know for certain how much I am willing to put in myself - it would likely depend how much the investor is willing to put up. However, I do have somewhere between $35,000 - $50,000 that I could put in as well.

My job basically is salesmanship, and I do pretty well, so I think that providing I can get some people to listen, If they can be sold, I have a decent chance of doing it.

Quote:

Originally Posted by DDDDave

NoSoup,

You know, I'm in the biz. What you want to do has been done before. In every town, every day. I hate to make it sound so easy, but put an ad in the classifieds... 'Wanted...real estate investor to partner on real estate deals' Your phone will ring off the hook. As you get older you will realize how much money is out there. Everyone is looking for a way to make money. You have the skills and an angle. You will need to have your ducks in a row, and have a 30 second 'elevator speech' ready. You will need to be able to state exactly what you want......you will get calls from a lot of peolpe in the same boat as yourself. But it only takes one true investor for your deal to fly.

Excellent - this is exactly what I was hoping for

Quote:

Talk to a real estate attorney friend. (I know you know a couple.) This should be your first task. The attorney will know how to structure the deals and probably knows the investor too. (It might be him.) They way for the investor to protect his investment is for the property to be in his name. IMHO, you will need to do the first couple of deals on a 'fixed fee' basis. "We will buy this house for $65,000, fix it up for $5,000 and sell it for $90,000". "Mr. Investor, I will do this whole deal for you and charge you $5,000. You just need to show up at the closing with the check for $65,000" The attorney will make sure that the funds get disbursed correctly, coming and going. Agreed, it is not the best deal or the deal you want, but you need a track record. If that deal goes according to plan, there will be plenty of others.

Well, I would like to form a partnership - had I wanted to earn a fixed amount, I would likely just have joined an investment group that had offered me a position. I want something I can pour my heart and soul into and make a decent living doing - and have some job satisfaction to boot.

I'm not complaining about what I currently do, but at the end of the day, I've basically just shuffled a shitton of paperwork around. Granted, at the closings it pays off a bit as far as seeing my clients buy their home, but I think actually being more involved with the actual construction portion would be more rewarding at the end of the day.

Quote:

What scares me is when you say 'financing them will significantly decrease the profits' Word to the young....when an investor is investing hard money he is not looking for a 10% return, he wants to double his money. In our business, interest expense is the cost of doing business. I don't even do a deal unless I can make 50%. Agreed, I do 1 for every 50 that I look at but it saves me spending time and effort on a deal that will make me 5 grand. Every deal requires the same amount of work, so only do the ones that will make you real money. A RE investor does not want you chasing every deal in town just to make 15%. If you cannot afford to pay 10% interest on the money for 6 months and still make good money, pass on the deal.

I don't mean to give them impression that I am only looking to make 10% - on the properties that I have been "practicing" with, I have made realistic returns ranging anywhere from 35-50%, in approximately three to four months time. Granted, because I didn't actually purchase them I cannot say for certain, but I've seen them purchased, overhauled, and resold. I've talked with the contractors and know what the work would approximately cost, and providing there was a decent inspection there shouldn't be much more than a 10% overage for unexptected problems. So I think I have a fairly accurate, albeit conservative, estimate.

However, I would prefer not to have to pay interest - if I didn't mind, I'd likely just finance the properties myself. I think that I'm in a unique position because I also work with a realtor that has agreed to sell the homes for a 1% commission. I work with a number of contractors who are always looking for side jobs or additional work and are willing to give me a substantial discount. Between not having to pay interest, the huge reduction in realtor commission, licenced contractors working for a reduced fee, and the additional negotiating power that having the cash up front will give me - not to mention the flexibilty with which properties I purchase - I figure I should be able to pull in at least an additional 15%, being very conservative - more that the typical investor. I imagine when it's all said and done it will likely be closer to 22%, but I hesitate to use such a high figure before I have a few projects under my belt.

Another advantage of making that extra percentage would be that the deals that other investors shy away from because they would only be making 15-20% on, would me much more feasible for myself because I'd be pulling in 30-35% - potentially more.

I certainly won't be chasing every deal in town, but being in the business gives me access to a lot of properties sooner than the general public typically hears about them. I also have a number of contacts that I will have on the lookout and have said that I may have first dibs on whatever properties they stumble across.

Quote:

Number one rule.....not location, location, location. DON'T FALL IN LOVE. If you fall in love you will do irrational things.

Good luck. Let me know.

I couldn't agree with you more. Love has nothing to do with a business transaction - only the figures matter. When I purchase my current investment property, it had nothing to do with how much I did or didn't like it, I made the decision based soley on factual data and my experience.

So far, I've done quite well - if I sold it today, I would net just over $75,000.00 on the deal - not too shabby. Of course, that isn't taking into account the rental income that I've earned over the last year.

Thanks for the advice everyone - keep it coming.

Also, I take constructive criticism well, and although I believe I have thought this through pretty well, perhaps there is some fatal flaw that I am overlooking. I'd love to hear about it if you spot it

Rodney · 05-17-2006, 01:16 PM

I'd sell the house and contribute the money to your nascent partnership, up front. Selling expertise is great, but what really convinces people is a managing partner who's thrown a hunk of his own money into the venture already. "Well, he's got $75K in, I don't see why I shouldn't do $25K."

Other than that, I agree with everything that DDDave says, since he probably knows a lot more than me!

Oh yeah, and if in your prospecting ventures you run across a dentist, ask then to introduce you to other dentists. I don't know what it is with dentists, but they seem to have a lot of money to invest: in real estate, as angel investors, even in independent movies.

NoSoup · 05-17-2006, 11:45 PM

Quote:

Originally Posted by Rodney

I'd sell the house and contribute the money to your nascent partnership, up front. Selling expertise is great, but what really convinces people is a managing partner who's thrown a hunk of his own money into the venture already. "Well, he's got $75K in, I don't see why I shouldn't do $25K."

I would much prefer not to, like I said, I'm already willing to contribute somewhere between 35-50k, but If I'd be contributing up to potentially 125k of my own funds, it would be much better for me just to finance it outright and keep all the profit. But, like I said, I prefer not to sell just yet

Other than that, I agree with everything that DDDave says, since he probably knows a lot more than me!

Quote:

Oh yeah, and if in your prospecting ventures you run across a dentist, ask then to introduce you to other dentists. I don't know what it is with dentists, but they seem to have a lot of money to invest: in real estate, as angel investors, even in independent movies.

Lol, I'll keep my eye out... or perhaps, my mouth open

Lindy · 05-18-2006, 06:40 PM

Quote:

Originally Posted by NoSoup

Agreed.

. . . . Love has nothing to do with a business transaction - only the figures matter. ... I made the decision based soley on factual data and my experience. If this is true, I can't understand your willingness to pay 50% of your profit to an investor, but you are reluctant to pay a few months of interest. The figures don't back up that choice.

So far, I've done quite well - if I sold it today, I would net just over $75,000.00 on the deal - not too shabby. Of course, that isn't taking into account the rental income that I've earned over the last year.
Why not sell the property, and put the proceeds with the "somewhere between $35,000 - -$50,000" that you have (you do have that in cash, right?) and be your own investor? Or is that you want to start with a more expensive property?
Thanks for the advice everyone - keep it coming.

Also, I take constructive criticism well, and although I believe I have thought this through pretty well, perhaps there is some fatal flaw that I am overlooking. I'd love to hear about it if you spot it

It comes across that you are seeking an investor because, although you have confidence, you are not willing to "bet the farm" in terms of your own money, on the success of your scheme. On the other hand, if you do it and it works, then you have a track record (albeit short.) That will make the next potential deal more attractive to an investor.
Lindy

NoSoup · 05-19-2006, 12:48 AM

Quote:

Originally Posted by Lindy

If this is true, I can't understand your willingness to pay 50% of your profit to an investor, but you are reluctant to pay a few months of interest. The figures don't back up that choice.

Well, it isn't just the interest. Being able to pay cash for a property - especially the types of properties I am looking for, will allow me to have not only substantially more negotiating leverage, but also the ability to finance properties outright that would be a pain in the ass, if not impossible, to finance.

Quote:

Originally Posted by Lindy

Why not sell the property, and put the proceeds with the "somewhere between $35,000 - -$50,000" that you have (you do have that in cash, right?) and be your own investor? Or is that you want to start with a more expensive property?

There are a couple of reasons I don't want to sell the property quite yet. First and foremost, if I keep the property another 11 months or so, I won't be required to pay captial gains on the income. Secondly, I believe there is a relatively decent chance (probably 50-50) that the property value will increase rapidly in the near future. A few changes will be happening in the area and it should bring the prices up, and if a new zoning vote passes, a contactor may want to purchase several of the homes in the area to demolish and put up for industry. Per the proposal that is currently in the courts, he may be required to pay 1.5x market value for the homes.

The funds aren't in cash, but are fairly liquid - they are in stocks and money market accounts. It would probably only take a few days to get it in cash.

Also, most of the properties I have been looking at are more expensive than I can afford to pay in cash, even if I sold the house, so I'd still be in the same boat, but with less cashflow and more cash sitting in the bank.

Quote:

Originally Posted by Lindy

It comes across that you are seeking an investor because, although you have confidence, you are not willing to "bet the farm" in terms of your own money, on the success of your scheme. On the other hand, if you do it and it works, then you have a track record (albeit short.) That will make the next potential deal more attractive to an investor.

Kinda, yeah. I would prefer not to put all of my savings/equity on the line. Also, I'd rather share the risk than take all myself. I'm only 22, and I'd feel more comfortable putting a portion of my assets at risk rather than "betting the farm" as you say. Although I have confidence in my abilities, I'm not the type of person to go all in this early in the game, when I have so much to lose...

Thanks guys - keep it coming

eribrav · 05-19-2006, 03:37 PM

Soup Man

I"m older than most folks here, and I don't mean to come across as a fuddy duddy, but this sounds exactly like the grandiose plans I heard over and over from stock market mavens in 1998-1999. The average Joe thought he could quit his job, and buy Cisco and Intel stock every day and sell it higher the next day. We all know how that ended, but I can tell you that the excitement back then was infectious, and nobody thought they could lose. Nobody asked themselves if they could handle a declining market and the reality was very few of them could. Those who are left now (and I'm proud to be one of them) are a different breed.
So what will you do if you find yourself in the hole $10,000 on one of your properties? How about $20,000 in the hole with no buyer in sight? Can you really answer these questions? Again, I'm not trying to be a killjoy, but it just all sounds so familiar to me.

Cynthetiq · 05-20-2006, 02:33 AM

Quote:

Originally Posted by eribrav

Soup Man

I"m older than most folks here, and I don't mean to come across as a fuddy duddy, but this sounds exactly like the grandiose plans I heard over and over from stock market mavens in 1998-1999. The average Joe thought he could quit his job, and buy Cisco and Intel stock every day and sell it higher the next day. We all know how that ended, but I can tell you that the excitement back then was infectious, and nobody thought they could lose. Nobody asked themselves if they could handle a declining market and the reality was very few of them could. Those who are left now (and I'm proud to be one of them) are a different breed.
So what will you do if you find yourself in the hole $10,000 on one of your properties? How about $20,000 in the hole with no buyer in sight? Can you really answer these questions? Again, I'm not trying to be a killjoy, but it just all sounds so familiar to me.

Good points!

I do have a friend who does this for million dollar homes. She had to carry a home for close to 2 years because she couldn't find a buyer. She does upscale homes, and when they were the du jour, she was making money hand over fist. The profit she made was very little on that particular property, but because she had planned for such things, she was able to ride it out, but If it continued, she may have been ruined. She did have to sell her own property her main residence because in hopes of one moving over the other, and eventually her residence sold before her investment property.

NoSoup · 05-20-2006, 11:07 AM

Quote:

Originally Posted by eribrav

Soup Man

I"m older than most folks here, and I don't mean to come across as a fuddy duddy, but this sounds exactly like the grandiose plans I heard over and over from stock market mavens in 1998-1999. The average Joe thought he could quit his job, and buy Cisco and Intel stock every day and sell it higher the next day. We all know how that ended, but I can tell you that the excitement back then was infectious, and nobody thought they could lose. Nobody asked themselves if they could handle a declining market and the reality was very few of them could. Those who are left now (and I'm proud to be one of them) are a different breed.
So what will you do if you find yourself in the hole $10,000 on one of your properties? How about $20,000 in the hole with no buyer in sight? Can you really answer these questions? Again, I'm not trying to be a killjoy, but it just all sounds so familiar to me.

You aren't being a killjoy - in fact, these are the reasons that I've waited so long to begin looking into this.

First and foremost, I'd try to alleviate most of the risk by purchasing only properties that will move relatively quickly. Granted, I can never know for certain, but I should be able to reduce the risk somewhat.

Secondly, I cannot say for certain that if everything goes terribly wrong that I would be fine, but I have saved up enough to prepare for something like this. I can deal with it for a while, but not indefinately. If I lost $10,000 or $20,000.00 on a deal I'd still be relatively fine, but if the figures got up to $60,000+ I'd be in trouble. However, keep in mind that I would not be the only one investing, so I could potentially lose even more money and be fine.

I am going to minimize the risk as much as possible (and still make a decent profit, of course) by researching all I can before I purchase a particular property. I certainly wouldn't jump from property to property - depending on the ones available, even if I found an investor tomorrow, it may be months, perhaps even a year or two, before I actually purchase something. I will wait for those particular deals where I believe the property is going far below market value, or has incredible potential to increase in value with a few changes, ect.

Another advantage of having the property already paid for in cash, though, is that there are nominal monthly expenses after the construction is paid for. Taxes, Insurance, and utilities are pretty much it - keeping the monthly loss fairly low. If I was stuck with a property long term, I could very likely rent it out and still make a positive cashflow while it's on the market.

BCD · 05-20-2006, 06:43 PM

No Soup,

I'm a bit confused. You keep saying you want to pay cash for properties b/c the interest expense would eat into your profit. However, you are going to pay a LOT more to an investor for the use of his cash to acquire the properties than you would had you obtained a standard mortgage loan. I'm a commercial real estate and business law attorney and regularly represent people who put the deals together and those who put the $ up. I haven't seen a single deal where an investor put up cash w/o having a realistic expectation of making at least 25% on their money. If you are asking someone to finance 100% of the purchase price, they're gonna want an even larger return.

On the other hand, a bank will typically loan new real estate investors such as yourself 80-85% of the property's value at prime + 0.25 or 0.50% - or approximately 8% in today's market. Why pay more than three times that by getting an investor involved simply b/c you don't want to get a traditional mortgage loan? I know you mentioned that you might not qualify b/c you are paid commission and recently switched jobs, but you should at least meet with a couple local commercial loan officers and see what they can do. I think you might be pleasantly surprised given your experience in real estate and strong credit score.

And in the event you are unable to obtain a loan on your own, I'd look for an investor to put up the 15 - 20% of cash and personal guaranty necessary to obtain a loan from a traditional lender. You'll have a lot more luck finding someone willing to do that than to write a check for 100% of the purchase price so he can go in business with someone he barely knows.

-BCD

DDDDave · 05-21-2006, 04:31 PM

NoSoup,

I've been waiting to respond to see what other good advice you might get. BCD hit the nail on the head (and imagine that, he is a RE attorney that I told you you needed to talk to). The way to make money in this business is OPM. It is not realistic to pay all cash for properties, put more cash in them, and then sell them for a big % profit. It is not worth the risk to do it for a small profit either. You must have the mindset that borrowing money is a good thing. All everyone talks about is how bad debt is but it is how fortunes are made. I know you are in the lending business so you know all this but you need to believe it and do it. As BCD said, most commercial lenders will lend at least 75% LTV. They will want tax returns and such, but you are a good credit risk. They make loans for investment so they are not near as interested in the time at your last job etc. Your current investment property is a good example of your track record. Do not go to the big banks (BofA, Wachovia, etc), go to a local bank and talk to a commercial lending officer. Have your financials ready. Ask right upfront for a credit ap and assure the loan officer that you will sign personally. You have said you are unwilling to 'go all in'. If you are not willing to do this, no loan officer worth his salt will lend you money. Assure the loan officer that you will sweat blood to pay him back. You should be able to get your financing lined up so that when you find the right property, you will be able to jump on it. OK, enough pep talks.

You have to spend money to make money. Form an S corporation, do all your business through this corp. Have business cards made and be sure they say 'NoSoup - President'. Give your company a professional sounding name. Nothing corny or unprofessional. Think of something that will sound impressive when you read it in the paper. I'm serious here. Trump didn't start off with 'Donny's Duplex Company'. Get a business phone line. Even if it forwards to your cell. People will take advantage of you if they think you are doing this out of the trunk of your car. (Even if you are

) It will make you feel professional, and people will think of you as a professional.

You may know all this and hopefully you have done it already but it never hurts to reinforce some basic business ideas. There will always be people like eribrav. It is what makes the world go 'round. You have to have confidence in your ability. You said earlier you didn't want to go all in when you have so much to lose. I will argue that at your stage in life, you have very little to lose. You are probably not old enough to remember the old Nike commercials - JUST DO IT .

Some practical things. I guess you cannot get much less than 1% commission but these properties are going to sell themselves. You are going to have a 'For Sale' sign in the yard as soon as you start renovations. You will get lot's of calls. Be sure to spend money on landscaping. Paint the front door and replace the front door lockset with a fancy one. A handleset, not a doorknob. There is only one chance at a first impression and a cheap front doorknob says 'cheap'. The only regret I have ever had in deals I have done is that I sold them too cheap. Send me your pro-forma and I will tell you what I think. At least you won't have to worry about me stealing your deals in Green Bay.

Enough for now. Good Luck.

BCD · 05-21-2006, 05:35 PM

Terrific advice DDDDave. The only thing I take exception to is that I wouldn't run the business through an S corp, but would use a single-member LLC instead. Single-member LLCs are cheaper to setup, easier to operate, and you are treated for federal income tax purposes as a sole proprietorship - which makes it cheaper and easier to prepare tax returns. The other reason I say LLC is that there are adverse tax consequences if you ever needed to convey the properties back out of the S corp to yourself. Once you have a track record and are consistently making good $, you might then want to incorporate an S corp to handle the rehab / property management side of the business and hold title to the properties in an LLC. This helps to segregate your high-risk activities from your valuable real property.

NoSoup · 05-24-2006, 08:59 AM

Quote:

Originally Posted by BCD

No Soup,

I'm a bit confused. You keep saying you want to pay cash for properties b/c the interest expense would eat into your profit. However, you are going to pay a LOT more to an investor for the use of his cash to acquire the properties than you would had you obtained a standard mortgage loan. I'm a commercial real estate and business law attorney and regularly represent people who put the deals together and those who put the $ up. I haven't seen a single deal where an investor put up cash w/o having a realistic expectation of making at least 25% on their money. If you are asking someone to finance 100% of the purchase price, they're gonna want an even larger return.

On the other hand, a bank will typically loan new real estate investors such as yourself 80-85% of the property's value at prime + 0.25 or 0.50% - or approximately 8% in today's market. Why pay more than three times that by getting an investor involved simply b/c you don't want to get a traditional mortgage loan? I know you mentioned that you might not qualify b/c you are paid commission and recently switched jobs, but you should at least meet with a couple local commercial loan officers and see what they can do. I think you might be pleasantly surprised given your experience in real estate and strong credit score.

And in the event you are unable to obtain a loan on your own, I'd look for an investor to put up the 15 - 20% of cash and personal guaranty necessary to obtain a loan from a traditional lender. You'll have a lot more luck finding someone willing to do that than to write a check for 100% of the purchase price so he can go in business with someone he barely knows.

-BCD

Indeed, it certainly would be more cost effective myself if I were to obtain financing on my own. However, I would then be assuming all of the risk. Although I have quite a bit of confidence in my skills and knowledge, it wouldn't be much of an investment without risk. By having another investor, I would be able to manage it and be more comfortable with the level of risk I would be assuming.

I likely could qualify for a loan if I wanted to do so, but I would much prefer to get an investor and purchase the properties in cash. Like I said, I would be more than willing to put some money in, but I wouldn't want to finance the majority of it - if I did, then I would probably just get a loan and do it myself

BCD · 05-24-2006, 02:48 PM

No Soup,

If you want to purchase propeties with someone else's money and have little or none of your money at risk or in play, you are - in my experience - unlikely to find anyone (short of a wealthy and trusting parent) willing to invest. Whether you like it or not, your unwillingness to put up any significant money (or subject yourself to significant liability by signing a note or guaranteeing the note) sends a message to the investor that you are not that confident in the project and/or your ability to make it a success. The investor will also have the concern that if the project becomes difficult or looks like it might not do well, you will simply walk away and leave the investor holding the bag. After all, the investor will surmise, if you have no risk, why would you continue to work hard to make a faltering project work? It is for this same reason that banks also want to see a borrower have some "skin in the game."

The only way I can see you finding investors and making money with your proposed business plan is to simply take a flat "finder's fee" for delivering the opportunity to the investor (who will purchase the property himself) and a "management fee" for managing the rehab and leasing of the property. Certainly takes the risk away, but not a way to make any REAL money. Depending on your state, you might also need a realtor's license to get the fee.

Don't know what DDDDave's opinion is, but suspect he will have a similar view based on his earlier postings.

-BCD

Lindy · 05-24-2006, 10:10 PM

Quote:

Originally Posted by NoSoup

I likely could qualify for a loan if I wanted to do so, but I would much prefer to get an investor and purchase the properties in cash. Like I said, I would be more than willing to put some money in, but I wouldn't want to finance the majority of it - if I did, then I would probably just get a loan and do it myself

You keep talking about "paying cash," but whether you find an investor or get a loan, what you are doing, in effect, is "paying cash" with borrowed money. That is no more "paying cash" than buying something with a Visa card. If it is not coming out of your own back pocket, it is not "paying cash."
Also, I would think that a potential investor would be given pause by your sig. A person who makes light of getting tossed in the drunk tank doesn't exactly give off an aura of reliability and good judgement. Consider how your ability to turn your real estate investment would change if you suddenly found yourself with several thousand dollars of legal expenses. And no driver's license.
Lindy

NoSoup · 05-25-2006, 04:37 AM

Quote:

Originally Posted by DDDDave

NoSoup,

I've been waiting to respond to see what other good advice you might get. BCD hit the nail on the head (and imagine that, he is a RE attorney that I told you you needed to talk to). The way to make money in this business is OPM. It is not realistic to pay all cash for properties, put more cash in them, and then sell them for a big % profit. It is not worth the risk to do it for a small profit either. You must have the mindset that borrowing money is a good thing. All everyone talks about is how bad debt is but it is how fortunes are made. I know you are in the lending business so you know all this but you need to believe it and do it. As BCD said, most commercial lenders will lend at least 75% LTV. They will want tax returns and such, but you are a good credit risk. They make loans for investment so they are not near as interested in the time at your last job etc. Your current investment property is a good example of your track record. Do not go to the big banks (BofA, Wachovia, etc), go to a local bank and talk to a commercial lending officer. Have your financials ready. Ask right upfront for a credit ap and assure the loan officer that you will sign personally. You have said you are unwilling to 'go all in'. If you are not willing to do this, no loan officer worth his salt will lend you money. Assure the loan officer that you will sweat blood to pay him back. You should be able to get your financing lined up so that when you find the right property, you will be able to jump on it. OK, enough pep talks.

As far as being under the assumption that "debt is bad" - I'm a loan officer too, and if I believed that I couldn't in good conscience do what I do every day

I certainly believe in the power of leverage, but after doing a number of deals with private investors, I see exactly what mistakes they make and where they could improve. Much of their potential profit is eaten up from the cost of financing, selling, and construction - I am doing all I can do avoid or reduce these fees as much as I can.

I'm gonna have to politely disagree with you, though - I wouldn't feel comfortable "going all in" - I have money set aside specifically for investment purposes, and I'm more than happy to use it - even potentially losing it. I also realize that I may have to dip into savings, and if things get really insane, possibly some equity of my home, but chances of that happening are reduced substantially by having the investor. Ideally, I'll just be using the funds I have set aside - I am not, at least at this point - willing to risk all that I have earned on an investment, I am pretty diversified and would like to keep it that way

Perhaps underwriting guidelines are a bit different where you are, however - I've worked at several different local financial institutions, and as a broker I work with no less than three dozen lending institutions - local and national. I have also done a number of commercial loans, and regardless of what I think of the borrower, or their conviction on paying the loan back, it all comes down to the underwriting policies, and nothing more. However, I appreciate the pep talk

Quote:

You have to spend money to make money. Form an S corporation, do all your business through this corp. Have business cards made and be sure they say 'NoSoup - President'. Give your company a professional sounding name. Nothing corny or unprofessional. Think of something that will sound impressive when you read it in the paper. I'm serious here. Trump didn't start off with 'Donny's Duplex Company'. Get a business phone line. Even if it forwards to your cell. People will take advantage of you if they think you are doing this out of the trunk of your car. (Even if you are

) It will make you feel professional, and people will think of you as a professional.

You may know all this and hopefully you have done it already but it never hurts to reinforce some basic business ideas. There will always be people like eribrav. It is what makes the world go 'round. You have to have confidence in your ability. You said earlier you didn't want to go all in when you have so much to lose. I will argue that at your stage in life, you have very little to lose. You are probably not old enough to remember the old Nike commercials - JUST DO IT .

Some practical things. I guess you cannot get much less than 1% commission but these properties are going to sell themselves. You are going to have a 'For Sale' sign in the yard as soon as you start renovations. You will get lot's of calls. Be sure to spend money on landscaping. Paint the front door and replace the front door lockset with a fancy one. A handleset, not a doorknob. There is only one chance at a first impression and a cheap front doorknob says 'cheap'. The only regret I have ever had in deals I have done is that I sold them too cheap. Send me your pro-forma and I will tell you what I think. At least you won't have to worry about me stealing your deals in Green Bay.

Enough for now. Good Luck.

I appreciate the insight regarding the S-Corp. I do have a home office/fax line, so all I need at this point would be additional business cards.

As far as putting the property up for sale myself, after some research, I've concluded that FSBO does not get as high as price in this area as having it listed in the MLS and having a licensed broker have open houses and what not. Although the difference isn't huge, it typically runs about 3=5% more with the broker - well worth the 1% comission. Granted, the figures I use do have a delay in them, so it is never exactly up to date (usually lagging 1-1.5 months behind) but it should suit my needs.

Agreed with the landscaping - and the new door should have been obvious to me, but wasn't - again, I appreciate the insight

Quote:

Originally Posted by BCD

Terrific advice DDDDave. The only thing I take exception to is that I wouldn't run the business through an S corp, but would use a single-member LLC instead. Single-member LLCs are cheaper to setup, easier to operate, and you are treated for federal income tax purposes as a sole proprietorship - which makes it cheaper and easier to prepare tax returns. The other reason I say LLC is that there are adverse tax consequences if you ever needed to convey the properties back out of the S corp to yourself. Once you have a track record and are consistently making good $, you might then want to incorporate an S corp to handle the rehab / property management side of the business and hold title to the properties in an LLC. This helps to segregate your high-risk activities from your valuable real property.

Excellent - again, I appreciate the advice.

Quote:

Originally Posted by BCD

No Soup,

If you want to purchase propeties with someone else's money and have little or none of your money at risk or in play, you are - in my experience - unlikely to find anyone (short of a wealthy and trusting parent) willing to invest. Whether you like it or not, your unwillingness to put up any significant money (or subject yourself to significant liability by signing a note or guaranteeing the note) sends a message to the investor that you are not that confident in the project and/or your ability to make it a success. The investor will also have the concern that if the project becomes difficult or looks like it might not do well, you will simply walk away and leave the investor holding the bag. After all, the investor will surmise, if you have no risk, why would you continue to work hard to make a faltering project work? It is for this same reason that banks also want to see a borrower have some "skin in the game."

The only way I can see you finding investors and making money with your proposed business plan is to simply take a flat "finder's fee" for delivering the opportunity to the investor (who will purchase the property himself) and a "management fee" for managing the rehab and leasing of the property. Certainly takes the risk away, but not a way to make any REAL money. Depending on your state, you might also need a realtor's license to get the fee.

Don't know what DDDDave's opinion is, but suspect he will have a similar view based on his earlier postings.

Perhaps this is where my inexperience/age shines through, but in my mind, $35,000.00 - $50,000 isn't exactly "insignificant." Property values in this are vary greatly, but are relatively low compared to say... California or other major metropolitan areas. I'm not looking for five million bucks - although it would depend on the particular properties that I find, I've been tracking and researching properties anywhere from the very, very low end properties $50,000.00 to the median single family homes, running anywhere from 170k-250k. Certainly there are homes that are worth much more around here, but seldom do they move quickly, there just isn't enough demand around here. Of course, there are exceptions to ever rule, but by and large this holds true in the area.

Although it'd be nice for a wealthy parent to invest in me, I've never had any help from anyone - and don't want to start accepting it now. Like I said earlier, I would prefer not to get any friends/family involved to complicate matters, but even on top of that, I've always been quite independant financially, and I would rather enter into a business partnership based on my skills and knowledge as opposed to exploiting a parent's trust in a child - not to mention, of course, that the chances of it happened, even if I asked my father, are incredibly slim

Quote:

Originally Posted by Lindy

You keep talking about "paying cash," but whether you find an investor or get a loan, what you are doing, in effect, is "paying cash" with borrowed money. That is no more "paying cash" than buying something with a Visa card. If it is not coming out of your own back pocket, it is not "paying cash."

Well, I'm going to have to disagree with you here Lindy...

Although there is very little difference to the buyer most of the time as to where the money comes from, paying cash - either from my own pocket or with an investor - if I have the money up front, I can quickly purchase properties that a lender typically would have a long and arduous process to have underwritten, if they decide to finance it at all. Granted, if it were just a single family home or something else very "mainstream" in the lending world, it likely won't take much to get financed, but for more distressed properties or 4+unit properties it would be much easier not to finance it through a lending institution.

Another advantage of actually having the money is the additional negotiating power that I'll have. Again, it may not have that much of a difference if I am purchasing a property from the typical seller, but very well could have a huge impact on a "motivated" seller - like someone that is getting foreclosed upon, transfered, etc. In fact, I have the perfect example - I work with an investment group, and earlier last week they offered cash on a REO from a bank that was $17,000.00 less than another offer. The other offer was contingent on financing, and the investment group's offer was accepted...

Quote:

Also, I would think that a potential investor would be given pause by your sig. A person who makes light of getting tossed in the drunk tank doesn't exactly give off an aura of reliability and good judgement. Consider how your ability to turn your real estate investment would change if you suddenly found yourself with several thousand dollars of legal expenses. And no driver's license.
Lindy

Well, um... I suppose?

I'm not even certain where to begin...

Although I suppose it [i]is[/is] possible for me to stumble across an investor in the TFP, I didn't really consider the possibility. Nevertheless, I imagine it is extraordinarily unlikely.

As far as my "aura of reliability and good judgement" - on the TFP, I like to think I contribute here...
Ask the Loan Officer
NoSoup's Guide to Obtaining and Maintaining Excellent Credit
NoSoup's Guide to Buying a Property: The Basics

In fact, I imagine that most people here on the TFP probably think I am a stuffy financial know-it-all

As far as my signature goes:

Quote:

A good friend would drive 30 miles at 2:00 am to bail you out of jail.

A best friend, however, would be sitting in the cell next to you saying "Man, that was F'n Awesome!"

I'm not really certain that it has anything to do with a drunk tank, I've always looked at is as more of a rather humorous quote regarding the differences between a friend and a best friend. In fact, I had this quote here on the TFP waaaay before I even started drinking.

I imagine losing my license would have an impact not only on my investments, but on my life as a whole. The couple thousand bucks would suck to pay, but I'd still be fine.

However, since I absolutely do not drink and drive, we probably don't have to worry about that now, do we?

**Edit** Meh, I'll just fix my sig...

Lindy · 05-25-2006, 07:55 AM

Quote:

Originally Posted by NoSoup

I'm not really certain that it has anything to do with a drunk tank, I've always looked at is as more of a rather humorous quote regarding the differences between a friend and a best friend. In fact, I had this quote here on the TFP waaaay before I even started drinking.

I imagine losing my license would have an impact not only on my investments, but on my life as a whole. The couple thousand bucks would suck to pay, but I'd still be fine.

However, since I absolutely do not drink and drive, we probably don't have to worry about that now, do we?

**Edit** Meh, I'll just fix my sig...

Lindy here, editing just to show the sig to which "we" were referring:
Quote:
A good friend would drive 30 miles at 2:00 am to bail you out of jail.

A best friend, however, would be sitting in the cell next to you saying "Man, that was F'n Awesome!"

OK, I sit corrected. I am perhaps over-sensitive to this, as my ex husband was a practicing drunk that took it very lightly. I bailed him out more than once. I learned later that a "best friend" (or spouse) should not bail someone out, and certainly not more than once. But that is a discussion for another forum.
Lindy

DDDDave · 05-27-2006, 03:35 PM

Well NoSoup, good luck to you.

I would never lend you the money to do your plan, but you may find someone who will. Everyone here has told you the same thing. You essentially have nothing at risk and want to realize an entrepreneurial gain. In my experience, it doesn't work that way. The guy who puts up the money takes the risk and he is the guy who makes the money.

Once again, good luck.

madp · 05-28-2006, 02:31 PM

Nobody ever got wealthy using their own money. Seeking private investors will NOT allow you to own the property outright. In fact, the "investors" you might seek outside of traditional loans (venture capitalists) will charge much higher interest rates than a conventional loan institution (they'll want a MINIMUM return of 20%apr, or majority ownership which you will have the option to buy out at a sum of money much greater than their initial investment), so that would decrease your margin more significantly than a bank loan (and this is assuming that a venture capitalist would even be interested in financing your operation, which is unlikely given the fact that the risk/reward ratio is not very appealing for someone else's real estate investments). Real estate is such a straight-forward business model that venture capitalists don't really need to finance an "expert" to make money in a small-scale venture. If you're talking about $100mil condo building, that's obviously another story. For a small business, the only benefit to seeking financing from a private party is that the debt does not show up on your credit report, and you maintain your borrowing power from banks. The most likely source for private financing would be a friend or family member who is interested in partnering up with you.

If you are in the business, then you know that you can get "interest only" loans, which significantly reduce your monthly note. Also, you know that if you invest in rental property, most institutions will give you credit for 75-80% of the rental income as personal income, giving you greater borrowing power to turn around and buy yet another rental property, and piece by piece you are able to amass a pretty decent holding. Piecing together rental properties one at a time has worked very well for me, but sometimes I wonder if the stress of dealing with tenants is worth it (I have a demanding day job as well).

Take my 2 cents for what it's worth, and good luck.

Quote:

Originally Posted by NoSoup

I've been hunting around the net for a bit now, and I've looked at so many sites trying to convince me to pay a fee to find investors my eyes are starting to water.

Basically, I am extraordinarily interested in starting a business - specifically a business involving real estate - that would involve purchasing properties outright.

Unfortunately, I don't have the capital that I would need to purchase these properties free and clear up front, and financing them may significantly decrease the profits.

Does anyone have any idea where I would find people that are interested in an investment opportunity? Can anyone recommend specific sites that would help me find investors?

Additionally, although I understand most small business investments are inherantly risky, because I am using the funds to purchase real estate, the chances of losing money are greatly diminished, although not impossible. However, I'm certain that my years of experience in the field, in this particular area, will reduce the chances even further.

I have no idea where to begin, really.

Unfortunately, small business loans are pretty much not an option for me for two reasons. First of all, I'd prefer not to finance the property, and secondly, I likely wouldn't qualify. I have very high credit (800+ scores) but I have two factors working against me. The first is that I am paid commission only from my current full time job, the second is that I recently switched companies, so although I have been in my field for a number of years, I haven't been with my current employer all that long.

Merlocke · 06-19-2006, 11:34 AM

I've got my own financial business up and started - luckily for me tax savings and foreign exchange don't require a ton of money up front start the ball rolling.

On the other side, I'm also getting a startup tech company up and going as well. Unlike the finance side of things, this one is going to require some capital, and some different approaches.

I'm not sure if it fits exactly - but perhaps this article might be a start.

http://money.cnn.com/magazines/busin...8491/index.htm

If no "Angel investors, or venture capitalists" decide to play the game with you, just go with DDDDave and charge finders fees to build your current startup to the point where you do have enough money to play on your own.

If you don't mind me asking (feel free to answer in a PM since it doesn't quite fit this discussion topic) what types of investments is your current startup capital sitting in now? Rates of return, etc. I'm playing with a few that are on the medium risk side that return upwards of 30%+ since I'm still young and can play with the risks without losing out on too much.

05-16-2006, 12:35 AM	#1 (permalink)
NoSoup Non-Rookie Location: Green Bay, WI	How would I Obtain Capital for Starting a Business I've been hunting around the net for a bit now, and I've looked at so many sites trying to convince me to pay a fee to find investors my eyes are starting to water. Basically, I am extraordinarily interested in starting a business - specifically a business involving real estate - that would involve purchasing properties outright. Unfortunately, I don't have the capital that I would need to purchase these properties free and clear up front, and financing them may significantly decrease the profits. Does anyone have any idea where I would find people that are interested in an investment opportunity? Can anyone recommend specific sites that would help me find investors? Additionally, although I understand most small business investments are inherantly risky, because I am using the funds to purchase real estate, the chances of losing money are greatly diminished, although not impossible. However, I'm certain that my years of experience in the field, in this particular area, will reduce the chances even further. I have no idea where to begin, really. Unfortunately, small business loans are pretty much not an option for me for two reasons. First of all, I'd prefer not to finance the property, and secondly, I likely wouldn't qualify. I have very high credit (800+ scores) but I have two factors working against me. The first is that I am paid commission only from my current full time job, the second is that I recently switched companies, so although I have been in my field for a number of years, I haven't been with my current employer all that long. __________________ I have an aura of reliability and good judgement. Just in case you were wondering...

05-16-2006, 07:53 AM	#2 (permalink)
snowy Kick Ass Kunoichi Location: Oregon	From everything I've seen on Food Network about starting food-oriented businesses--network, network, network. Let your friends know you want to start a business, and get the word out to their friends. Someone you know will invariably know someone who's willing to invest. I'm sure there are books about it as well. Try starting there. __________________ If I am not better, at least I am different. --Jean-Jacques Rousseau

05-16-2006, 10:00 AM	#3 (permalink)
NoSoup Non-Rookie Location: Green Bay, WI	I've considered that, but I would much rather not involve any personal relationships. I'd much rather keep things simple and stictly a business relationship, rather than having mucky waters with friends/family. Also, I'm looking only for investors - I would much prefer that I handle the business by myself, simply because I trust my knowlege of the market and the area. However, I understand that it may be difficult to find an investor that is basically just willing to trust me to control their funds without them having any say, but I would imagine I am more likely to find that person if I look outside my network of friends/co-workers. The nice thing is, providing that they are willing and able to finance the majority of it - although I do have some cash set aside - I would be happy to split the profits 50/50 with myself earning 50% and the investor(s) earning the other 50%. Because I won't be obtaining financing through a typical lender, I will have much, much more freedom in choosing properties and negotiating the sales price, so I would imagine that within a few years, they would have doubled their initial investment, providing things work out of course. At that point, they would of course be able to continue their investment if they like, but eventually I'm hoping to reach the point of being able to finance the properties by myself, or at least a portion of them. __________________ I have an aura of reliability and good judgement. Just in case you were wondering...

05-16-2006, 10:55 AM	#4 (permalink)
cyrnel Adequate Location: In my angry-dome.	Ask what you're bringing to the deal. Ideas are cheap. Money talks. You either need rich trusting souls (they're all dead now) or you have to present your idea in a way that protects it while attracting investment. Not easy. The saying goes something like... "If you aren't the salesman then finding him is your first job." I understand your desire to keep things away from people you know, but one-sided risk usually means seeking out family or friends. They risk the capital and you risk the relationship. __________________ There are a vast number of people who are uninformed and heavily propagandized, but fundamentally decent. The propaganda that inundates them is effective when unchallenged, but much of it goes only skin deep. If they can be brought to raise questions and apply their decent instincts and basic intelligence, many people quickly escape the confines of the doctrinal system and are willing to do something to help others who are really suffering and oppressed." -Manufacturing Consent: Noam Chomsky and the Media, p. 195

05-16-2006, 11:18 AM	#5 (permalink)
Cynthetiq Tilted Cat Head Administrator Location: Manhattan, NY	write up a business plan and shop it to investors. Where do you find them is the critical element. you find them where ever you find them. I know that it doesn't help but it means that you have to meet and shake hands with people at mixers, meet and greets, maybe even going to speak to people already doing what you are interested in investing in, real estate offices. __________________ I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not. What's the best nation in the world? DO-NATION!

05-16-2006, 02:13 PM	#6 (permalink)
DDDDave Addict Location: Sarasota	NoSoup, You know, I'm in the biz. What you want to do has been done before. In every town, every day. I hate to make it sound so easy, but put an ad in the classifieds... 'Wanted...real estate investor to partner on real estate deals' Your phone will ring off the hook. As you get older you will realize how much money is out there. Everyone is looking for a way to make money. You have the skills and an angle. You will need to have your ducks in a row, and have a 30 second 'elevator speech' ready. You will need to be able to state exactly what you want......you will get calls from a lot of peolpe in the same boat as yourself. But it only takes one true investor for your deal to fly. Talk to a real estate attorney friend. (I know you know a couple.) This should be your first task. The attorney will know how to structure the deals and probably knows the investor too. (It might be him.) They way for the investor to protect his investment is for the property to be in his name. IMHO, you will need to do the first couple of deals on a 'fixed fee' basis. "We will buy this house for $65,000, fix it up for $5,000 and sell it for $90,000". "Mr. Investor, I will do this whole deal for you and charge you $5,000. You just need to show up at the closing with the check for $65,000" The attorney will make sure that the funds get disbursed correctly, coming and going. Agreed, it is not the best deal or the deal you want, but you need a track record. If that deal goes according to plan, there will be plenty of others. What scares me is when you say 'financing them will significantly decrease the profits' Word to the young....when an investor is investing hard money he is not looking for a 10% return, he wants to double his money. In our business, interest expense is the cost of doing business. I don't even do a deal unless I can make 50%. Agreed, I do 1 for every 50 that I look at but it saves me spending time and effort on a deal that will make me 5 grand. Every deal requires the same amount of work, so only do the ones that will make you real money. A RE investor does not want you chasing every deal in town just to make 15%. If you cannot afford to pay 10% interest on the money for 6 months and still make good money, pass on the deal. Number one rule.....not location, location, location. DON'T FALL IN LOVE. If you fall in love you will do irrational things. Good luck. Let me know. __________________ I am just a simple man trying to make my way in the universe... "Go confidently in the direction of your dreams. Live the life you have imagined." - Thoreau "Nothing great was ever accomplished without enthusiasm" - Emerson

05-17-2006, 01:16 PM	#8 (permalink)
Rodney Observant Ruminant Location: Rich Wannabe Hippie Town	I'd sell the house and contribute the money to your nascent partnership, up front. Selling expertise is great, but what really convinces people is a managing partner who's thrown a hunk of his own money into the venture already. "Well, he's got $75K in, I don't see why I shouldn't do $25K." Other than that, I agree with everything that DDDave says, since he probably knows a lot more than me! Oh yeah, and if in your prospecting ventures you run across a dentist, ask then to introduce you to other dentists. I don't know what it is with dentists, but they seem to have a lot of money to invest: in real estate, as angel investors, even in independent movies. Last edited by Rodney; 05-17-2006 at 01:20 PM..

05-19-2006, 03:37 PM	#12 (permalink)
eribrav Junkie Location: upstate NY	Soup Man I"m older than most folks here, and I don't mean to come across as a fuddy duddy, but this sounds exactly like the grandiose plans I heard over and over from stock market mavens in 1998-1999. The average Joe thought he could quit his job, and buy Cisco and Intel stock every day and sell it higher the next day. We all know how that ended, but I can tell you that the excitement back then was infectious, and nobody thought they could lose. Nobody asked themselves if they could handle a declining market and the reality was very few of them could. Those who are left now (and I'm proud to be one of them) are a different breed. So what will you do if you find yourself in the hole $10,000 on one of your properties? How about $20,000 in the hole with no buyer in sight? Can you really answer these questions? Again, I'm not trying to be a killjoy, but it just all sounds so familiar to me.

05-20-2006, 06:43 PM	#15 (permalink)
BCD Insane Location: Charlotte, NC	No Soup, I'm a bit confused. You keep saying you want to pay cash for properties b/c the interest expense would eat into your profit. However, you are going to pay a LOT more to an investor for the use of his cash to acquire the properties than you would had you obtained a standard mortgage loan. I'm a commercial real estate and business law attorney and regularly represent people who put the deals together and those who put the $ up. I haven't seen a single deal where an investor put up cash w/o having a realistic expectation of making at least 25% on their money. If you are asking someone to finance 100% of the purchase price, they're gonna want an even larger return. On the other hand, a bank will typically loan new real estate investors such as yourself 80-85% of the property's value at prime + 0.25 or 0.50% - or approximately 8% in today's market. Why pay more than three times that by getting an investor involved simply b/c you don't want to get a traditional mortgage loan? I know you mentioned that you might not qualify b/c you are paid commission and recently switched jobs, but you should at least meet with a couple local commercial loan officers and see what they can do. I think you might be pleasantly surprised given your experience in real estate and strong credit score. And in the event you are unable to obtain a loan on your own, I'd look for an investor to put up the 15 - 20% of cash and personal guaranty necessary to obtain a loan from a traditional lender. You'll have a lot more luck finding someone willing to do that than to write a check for 100% of the purchase price so he can go in business with someone he barely knows. -BCD

05-21-2006, 04:31 PM	#16 (permalink)
DDDDave Addict Location: Sarasota	NoSoup, I've been waiting to respond to see what other good advice you might get. BCD hit the nail on the head (and imagine that, he is a RE attorney that I told you you needed to talk to). The way to make money in this business is OPM. It is not realistic to pay all cash for properties, put more cash in them, and then sell them for a big % profit. It is not worth the risk to do it for a small profit either. You must have the mindset that borrowing money is a good thing. All everyone talks about is how bad debt is but it is how fortunes are made. I know you are in the lending business so you know all this but you need to believe it and do it. As BCD said, most commercial lenders will lend at least 75% LTV. They will want tax returns and such, but you are a good credit risk. They make loans for investment so they are not near as interested in the time at your last job etc. Your current investment property is a good example of your track record. Do not go to the big banks (BofA, Wachovia, etc), go to a local bank and talk to a commercial lending officer. Have your financials ready. Ask right upfront for a credit ap and assure the loan officer that you will sign personally. You have said you are unwilling to 'go all in'. If you are not willing to do this, no loan officer worth his salt will lend you money. Assure the loan officer that you will sweat blood to pay him back. You should be able to get your financing lined up so that when you find the right property, you will be able to jump on it. OK, enough pep talks. You have to spend money to make money. Form an S corporation, do all your business through this corp. Have business cards made and be sure they say 'NoSoup - President'. Give your company a professional sounding name. Nothing corny or unprofessional. Think of something that will sound impressive when you read it in the paper. I'm serious here. Trump didn't start off with 'Donny's Duplex Company'. Get a business phone line. Even if it forwards to your cell. People will take advantage of you if they think you are doing this out of the trunk of your car. (Even if you are ) It will make you feel professional, and people will think of you as a professional. You may know all this and hopefully you have done it already but it never hurts to reinforce some basic business ideas. There will always be people like eribrav. It is what makes the world go 'round. You have to have confidence in your ability. You said earlier you didn't want to go all in when you have so much to lose. I will argue that at your stage in life, you have very little to lose. You are probably not old enough to remember the old Nike commercials - JUST DO IT . Some practical things. I guess you cannot get much less than 1% commission but these properties are going to sell themselves. You are going to have a 'For Sale' sign in the yard as soon as you start renovations. You will get lot's of calls. Be sure to spend money on landscaping. Paint the front door and replace the front door lockset with a fancy one. A handleset, not a doorknob. There is only one chance at a first impression and a cheap front doorknob says 'cheap'. The only regret I have ever had in deals I have done is that I sold them too cheap. Send me your pro-forma and I will tell you what I think. At least you won't have to worry about me stealing your deals in Green Bay. Enough for now. Good Luck. __________________ I am just a simple man trying to make my way in the universe... "Go confidently in the direction of your dreams. Live the life you have imagined." - Thoreau "Nothing great was ever accomplished without enthusiasm" - Emerson

05-21-2006, 05:35 PM	#17 (permalink)
BCD Insane Location: Charlotte, NC	Terrific advice DDDDave. The only thing I take exception to is that I wouldn't run the business through an S corp, but would use a single-member LLC instead. Single-member LLCs are cheaper to setup, easier to operate, and you are treated for federal income tax purposes as a sole proprietorship - which makes it cheaper and easier to prepare tax returns. The other reason I say LLC is that there are adverse tax consequences if you ever needed to convey the properties back out of the S corp to yourself. Once you have a track record and are consistently making good $, you might then want to incorporate an S corp to handle the rehab / property management side of the business and hold title to the properties in an LLC. This helps to segregate your high-risk activities from your valuable real property.

05-24-2006, 02:48 PM	#19 (permalink)
BCD Insane Location: Charlotte, NC	No Soup, If you want to purchase propeties with someone else's money and have little or none of your money at risk or in play, you are - in my experience - unlikely to find anyone (short of a wealthy and trusting parent) willing to invest. Whether you like it or not, your unwillingness to put up any significant money (or subject yourself to significant liability by signing a note or guaranteeing the note) sends a message to the investor that you are not that confident in the project and/or your ability to make it a success. The investor will also have the concern that if the project becomes difficult or looks like it might not do well, you will simply walk away and leave the investor holding the bag. After all, the investor will surmise, if you have no risk, why would you continue to work hard to make a faltering project work? It is for this same reason that banks also want to see a borrower have some "skin in the game." The only way I can see you finding investors and making money with your proposed business plan is to simply take a flat "finder's fee" for delivering the opportunity to the investor (who will purchase the property himself) and a "management fee" for managing the rehab and leasing of the property. Certainly takes the risk away, but not a way to make any REAL money. Depending on your state, you might also need a realtor's license to get the fee. Don't know what DDDDave's opinion is, but suspect he will have a similar view based on his earlier postings. -BCD

05-27-2006, 03:35 PM	#23 (permalink)
DDDDave Addict Location: Sarasota	Well NoSoup, good luck to you. I would never lend you the money to do your plan, but you may find someone who will. Everyone here has told you the same thing. You essentially have nothing at risk and want to realize an entrepreneurial gain. In my experience, it doesn't work that way. The guy who puts up the money takes the risk and he is the guy who makes the money. Once again, good luck. __________________ I am just a simple man trying to make my way in the universe... "Go confidently in the direction of your dreams. Live the life you have imagined." - Thoreau "Nothing great was ever accomplished without enthusiasm" - Emerson

06-19-2006, 11:34 AM	#25 (permalink)
Merlocke Location: Canada	I've got my own financial business up and started - luckily for me tax savings and foreign exchange don't require a ton of money up front start the ball rolling. On the other side, I'm also getting a startup tech company up and going as well. Unlike the finance side of things, this one is going to require some capital, and some different approaches. I'm not sure if it fits exactly - but perhaps this article might be a start. http://money.cnn.com/magazines/busin...8491/index.htm If no "Angel investors, or venture capitalists" decide to play the game with you, just go with DDDDave and charge finders fees to build your current startup to the point where you do have enough money to play on your own. If you don't mind me asking (feel free to answer in a PM since it doesn't quite fit this discussion topic) what types of investments is your current startup capital sitting in now? Rates of return, etc. I'm playing with a few that are on the medium risk side that return upwards of 30%+ since I'm still young and can play with the risks without losing out on too much. __________________ -=[ Merlocke ]=-