All Forum Posts by: Craig Grella

Jeff's post is one of the most clear and concise summaries of the investor memo i've seen.

We do this on a consulting basis for clients and everything he includes is something we go through step by step when creating those memos.

It's not rocket science, it just takes some time, research, and analysis of the market in which you plan to work.

I've always found that my successful clients were those who could show potential financiers how they were successful on previous investments, and how those same qualities relate to the job at hand.

If you've taken just one home and rehabbed it for a profit you should make sure your potential investors know about that process and how you'll apply it to the property which you are asking them to invest in.

For some additional finance information and articles on small business setup see http://www.examiner.com/x-22012-Seattle-Small-Business-Examiner

Good luck.

-Craig

If you're expecting to make income over $200,000 per year you may want to look into either the LLC or Corporation.

If you're starting off smaller with your own personal money making only and small notes the cost of setting up and maintaining one of those entities may outweigh any tax advantage you would see. You can just start as a sole proprietorship.

Remember each state has rules and licensing governing any type of lending. Check those out before you start lending.

For more business information you might want to checkout http://www.examiner.com/x-22012-Seattle-Small-Business-Examiner

Good luck.

-Craig

In my experience most novice investors get the analysis paralysis and don't move quickly enough when there's a good deal in front of them. However, i do think there are some things you can do to put yourself in the right place when it is time to make those offers. Those things can take time, but they'll make you a better investor:

- Get your credit score in order
- make sure financials are clean
- raise cash for down payments, operating costs, etc
- put a good team together, attorney, broker, agent,etc.

Friends and family are a great source for down payment money and it's the place i've found 90% of my money for my investments. As soon as you find success with one and return them their money with interest, they will be more than happy to give it right back to you.

I've written this in other posts on the site, but i think your time is better spent raising money for downpayments than going around looking for amazing deals. Reason is the following: Having a good deal in hand doesn't mean you'll be able to raise the required money to buy or use as a downpayment, but having downpayment money ready to go and having good financials will always allow you to move quickly when you do find those good deals.

Good luck.

I've yet to meet a seller who hasn't responded to a realistic LOI. If the property is worth $1mil and your LOI offers $100k, don't expect to hear anything back right away (or ever). My LOI's are simple. First page is letterhead and has one paragraph stating the address and price you'd like to offer. That's it. Nothing else. No commentary about how much you like it or how much work it needs. Second page is a copy of my financial statement and a copy of the letter of credit i keep with my local lender.

I do recommend that buyers get good representation from a good agent, broker, or attorney. They can send the LOI on their own, but if they get a bite they should turn it over to someone who can negotiate a contract that protects their interests.

Its my humble opinion, but i think your time is better spent raising money than combing through countless websites and papers talking to unlrealistic and unreasonable sellers for good deals.

all the personal investing i've done in the last couple years has been with family and/or syndications, and i spend more time speaking with potential investors than i do with sellers.

When you've put together a good chunk of cash for down investment the brokers and agents will work very hard for you to find those great deals and motivated sellers. It never fails.

Cyrus,

the Urban Land Institute and Price Waterhouse coopers has compiled an extensive study on real estate markets for the past 30 years. each year they release a very detailed report that is the answers from a survey of thousands of developers, investors, lenders, and institutional real estate firms about markets across the country and beyond.

In it you'll find a ranking of the country's top markets for each commercial property type, as well as a survey of what the big developers are doing in those areas, like buying, selling, holding, etc.

Look it up on uli's website. uli.org. You're looking for the emerging trends in real estate. it's released yearly.

Korpacz also releases a yearly report with this info, but it is pretty expensive.

good luck.

craig

Most buyers who can afford the 20% cash down can get better financing than 9%.
You also wont need to wrap anything. You're buying the property all cash and it will be free and clear. You're then offering it to a seller who presumably can't or doesn't want to mess with bank qualifying. Therefore you're the only lien. No wrap. Just make sure you work out a good agreement with your investor spelling out who gets what share of the profit and who covers what share of the expenses.

You can purchase the house from the seller using an option agreement with a purchase price of $130k and then assign the option to the buyer for a fee of $10,000. That's perfectly legal, and very common, in all the states i've done business in.

Without knowing all the laws and regulations regarding real estate in the state of colorado, you might want to check into whether you need to have a real estate related license or broker's license to do so. Most states have rules about how many times you can do that. Over a certain amount of transactions they consider you to be a real estate broker/dealer and require you to have a real estate license.

You can also look into using some sort of finder's fee agreement with the seller. Rather than have the seller sell the property to you, you would have the seller go into contract with the buyer directly and your fee agreement would stipulate you receive that 10k fee at close.

Good luck.

If debt is already included in the expense calculation then you'd have to hold that property for at least 5 years to make a decent return. That's a long time to have $200k+ tied up for such small returns.

If debt is not calculated yet in that expense list, then you'd have to hold this alot longer just to get into positive return areas. That's way to long to tie up money in my opinion.

at PP of $900k, the cap rate is 6.67%, not 10%, and that's not something open to interpretation. It's just a formula, and numbers don't lie.

A carwash should trade closer to the 10% cap rate, which means this property should be priced closer to $600k.

hope that helps.

you certainly have high ambition.
The scope of this project would put you in the class of a very large regional developer. If you have not yet developed property on that scale it will be hard to pull something off of this magnitude. Not impossible, but hard.

In this market, It will be impossible to finance without plans or initial approvals in place. There aren't many, if any, lenders out there willing to take entitlement risk anymore, which means development money is coming out of your pocket. unless you've got the cash you'll have to partner up with someone (or some company) that does.

You might want to research some of the successful regional developers in your area and share your vision with them. before you do, you might want to get the land under contract or at least under your control with some kind of option that protects you from other more fiscally sound developers jumping in and stealing it from you.

As far as investors go, on a speculative development like this i'd look for a return in the high teens to low 20's. Especially if i was putting in seed capital.