Wrong funding for the right project?

[Sonny Pemberton]

Greetings,

(sorry in advance for the long read)

I have been browsing the forums, blogs, and member links for days trying to get a consensus on the best approach to take on my current situation. Any advice would be greatly appreciated.

I have recently formed a business with a partner in Chattanooga, TN ( a great market for what we are working on) but Im having a little trouble living up to my part of the partnership.

He has all the real estate background and can find some incredible deals, whereas I have some business management and marketing experience. I was brought on because he has run out of uncles and cousins to fund some GREAT deals that he has found.

After doing lots of SEC research and reading how others invest, I think I may have gotten in over my head... I know there is private money out there, and that is the hopes for my partner to fund all the transactions. He wants SDIRAs and people needing retirement income to be the target. That is fine except for how to find those deals.

His mentor suggested REICs, but mine (who has been in real estate 30+ years) says finding private money there is like signing up for a singles cruise and it turning out being a ship full of dudes all looking for girls. Reading the other posts here, I still have not ruled it out, but am not really holding my breath for lots of income via that stream.

Reading the success rate of county deed searches doesn’t give me alot of hope. I have developed an excellent screening process involving all the steps to build the "relationship" (website, snail-mail material, luncheon materials, business plan, investor pre-qual, etc), but I want to make sure this is still the route to go.

Other than that, I don’t know if offering money for "referrals" from family, friends and current investors is legal (anyone know???).

We know that re-occurring business shouldn’t be a problem once we isolate a pool of money. I have talked to mortgage brokers and found good rates (4%) on short term loans, but its 4 at a time max and 20% required. I have talked to some hard money, but 15% + is higher than we would like to pay.

We are finding it difficult to come up with an "ideal" source for funds, so here are the questions:

What should be conceded at the beginning of our business in order to build relationships? (I know many 1-person companies are offering 50/50 equity partners - how would this work for us?)

Should we go with un-favorable HML to build a track record?

Should county deed search be utilized and what’s a "proven" approach?

Are REICs worth it? do people find investors there?

Our plan is solid, but we have only gone through the full process 3 or 4 times, so no REAL track record established that we can lean on. (my partner has a nice portfolio of rentals and a good record of flips/rehabs done before we started the LLC)

Here is the info to better help you answer -
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We purchase hand-picked foreclosures (hand-picked meaning they require very little rehab) for amazing steals. My partner has access to the lists an is notified as soon as they hit market - we act fast.

The last 2 were $32k for AV of $96k and $50k for AV of $119k. We set up a lease purchase and find a pre-qualified tenant before we even close (enough for GOOD down, 620 or better score, and desire to get mortgage).

We offer a good value for the LP ($69k and $85k respectively) and require tenant to have documented proof of seeking mortgage every 90 days. We offer to assist them by having credit repair partners, mortgage lenders that work with all credit etc.

Though the LP is figured on 30 years, its 5 years balloon with an exit clause after 5 years, we shoot for the 6 - 18 month timeframe for closing.

Currently, we have offered 7% IO payments and 30% net at closing, or 11% and 5% closing. (do those seem right?)

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It has worked well so far, but we want to take it much further. Any advice, critiquing, feedback would be GREATLY appreciated. I would be happy to send documents etc for review for feedback as well.