How to structure private money or partnership

[Robert Murphy]

I have a agreement on a single family house in walking distance to major university in Ct. Here s the deal

purchase price 143000

down payment 28 600

mortgage 114 400

P +I 5% 614

tax 280 month

insurance 90 month

property mgmt 156 month

property mant 250 Month

Oil 250 month

water sewer 83 month

cap impro 2% 52 month

vacancy 6% 156 month

Total 1,93100 month

rents 2,600

net oper income 669 month

Student Housing students pay between 500-600 month per room plus electric cable internet

Description of property

Ranch 1000 sq ft 3 bd 1 bth main floor 2 bd 1 bth fished cellar all bedrooms rent able New up dated kitchen all paint in side an out less than 2 years old Boiler and hot water heater less than 2 years old ready to move in

I am going tomorrow to approach a interest person in ether a private money loan for down payment or partnership in property I have Never done this before, how would I present this to him He has stated he would be interested in ether or depending on the deal Thank you,I would appreciate input on this mater. I just struck deal last night need to meet potential private lender /partner tomorrow Bob Murphy

[Bill Gulley]

Meeting a potential investor to present a deal:

Getting money folks on board with you can be intimidating and scary if you don't know them. It really begins with a more social introduction, just because someone has money doesn't mean you need to prostitute yourself, give up your vision of the deal or get tied up with some shark type.

I could write a book on this topic, but won't here. Here is a list of points to address in the beginning.

Consider how you know them or know of them, you aren't asking for a loan but you are offering an opportunity. Break the ice socially, your objective is to communicate your abilities, knowledge, expertise, even if it is limited, you may well know more about RE than they do.

Present the deal, just as you laid it out above is fine, be conservative and tell them you are being conservative.

You need to figure out the structure you want, do you want it as a loan and secure them with a deed of trust or mortgage or do you want a partner arrangement? If you want a loan, explain it as a loan, with the terms and what they can expect. If you want a partnership then you need to present it as such but you have questions to ask before you suggest the arrangement.

If you want an LLC, explain it if they are not familiar with them, most investors want a passive position and don't want management activities, you can present the deal down this avenue initially and assure them of their security.

If you speaking to a business minded type, allow them to suggest what they would be interested in,

Be sensitive to their tax position, I try to suggest that WE speak to their accountant if they have concerns, that's another few chapters dealing with an investor's trusted advisor and it's important that both of you be there, and come to a resolution as walking out without closing the deal only lets them make a phone call later to be talked out of doing the deal. Most attorneys and accountants don't want their clients getting into RE deals unless that is what the client does.

If you are business wise, you can explain the accounting, tax and liability issues along with the security and insurance aspects. Don't think you need to be an expert in every matter, if you appear to be blowing smoke, you're DOA!

Do not guarantee anything except the return you promise.

Do not refer to their money as their "investment" investments are made in securities!

Do not refer to them as an "investor", investors are entitled by law to be given certain types of disclosures, financial statements and data that you won't really have and most likely you don't want to let them know you're broker than they think you are. "Investors" are also in a frame of mind of receiving assurances that may not have been made, if the deal goes south, and they tell their attorney they invested with you, then that attorney has all kinds of ammunition to hit you with. Refer to them as a "partner in this deal", structure your presentation saying "we can"  "together we can do this or that", partners assume risks more than investors do.

Never mention another investor's name, doing so tells them you aren't very business like and you're not dealing confidentially, don't be a name dropper! You can speak as others as partners or investors, but usually past structures are not necessary except to say this is how we have done it in the past, or this is how we do it......

Know how the money is to flow, don't take money personally and put it in your personal account. Use escrow accounts, separate funds and let them know that the money is always secured, on deposit, to the title company closing agent, that deeds are executed, etc.

Then move on to the desired structure, an LLC requires an Operating Agreement, if that is the structure it needs to be set up prior to money being funded. If it's a loan it can be funded at the closing table with certified funds.

While this may sound complicated, it's not really, you just need to know your deal, be confident but not puffing the deal, you need to know about them, meet their needs, show that the money is always secured and how it will be used.

If construction is part of the deal and the amount is significant, I suggest you offer to use a construction disbursement service with your title company, most offer the service and they insure over the construction aspects as well as obtain releases necessary and account for funds.

Sorry, my fingers are getting tired, this certainly isn't everything, but the main points to consider. Good luck :)