leveraging capital

[Kenneth Shelley]

I met with a potential private lender with funds over 100,000 liquid. How could I leverage private capital as a cash down payment to purchase large rental assets?

[Don Konipol]

Originally posted by @Kenneth Shelley:

The idea is to use investor capital to secure rental units. I have 4 private lenders. Each with 100,000 to start with. These people just have IRA capital and are not a company. They just want a 10% return when I refinance the loan. I just need somone experienced with this to get my T's crossed and my I's dotted.

 I know you do not want to hear this, but I will provide this information anyway

1. Raising capital from investors who will be passive in an investment is selling a security. The sale of securities must either be registered with the SEC or a state securities agency if an intra state offering, or exempt from registration under a private offering exemption

2. Not withstanding the above, an individual raising capital in a private securities offering must provide all potential investors with a detailed private plavcement memorandum or he gives up all his statutory defenses in case he he sued by the investors

3. People who are private lenders want a first lien position, so in order to purchase a property you will have to provide the equity capital unless they are willing to provide 100% financing

4. Only the naive, the dumb, or a relative would provide financing in an inexperienced investor

5. Private lenders are interested in short term loans, so there would need to be an obtainable plan to either sell or refinance the property to pay the lenders back

6. Private short term loans typically carry high interest rates that eat up any cash flow from rental units and often result in a negative cash flow

7. The 'steals' are usually sold fast to buyers with cash and the ability to put up significant earnest money without a financing contingency.

8. Many sellers require proof of funds and will not accept letters from private lenders

9. Identifying passive investors with money to lend or invest is the easist part of the,e equation. Identifying quality investments that meet the criteria for risk vs return, getting people to actually invest in the deal, negotiating the deal, convincing the seller to accept your offer with contingencies, and working through title issues are much, much harder