All Forum Posts by: Eddie Borio

Thanks Jay!

Investment Info:

Other other investment in Cedar Falls.

Purchase price: $350,000
Cash invested: $100,000
Sale price: $5,000,000

This was a Real Estate holding and building company that I invested in and took a 1/3 interest..... grew it 300% in a year... then was surprised by my partners scams.

It started with two partners (them) needed a third partner (me) to help them take their business to the next level, while reducing the time for the modular homes to be be constructed.

What made you interested in investing in this type of deal?

We all met at an ambitious Mastermind Event where we paid $25,000 to attend. Maybe this motivated us to put fear aside and do some deals together!

My buy in was a some cash ($100,000) and my expertise in exchange for 1/3 interest.... and a 1/3 of the monthly cashflow.
The challenge , the way they ran the business, it was almost impossible to understand the health of the business.
I still was not sure what the month CF on the existing properties was!!!

How did you find this deal and how did you negotiate it?

I relocated to Iowa from Arizona and help them revamp the entire financial system and building process, resulting in construction times from 96 days to 33 days. These were very nice modular homes bought on large semi trucks and pieced together on site. After they were set on the solid pads, then the completion vendors came in to make the home look nice and hook up all the electrical, water, plumbing, drywall patches, carpet work, and such. We had to figure out how to grow the biz.

How did you finance this deal?

We invested cash and took on traditional investor loans.

I uncovered that there was a bit of cash out financing going on to free up money for more houses.... essentially pulling out all the created appreciation profit, and leveraging it to buy more new homes.
The issue was they were using a crooked Appraiser, who was producing much higher appraisals than what the properties were worth. No wonder why they valued my great credit!

This created a house of cards, ready to tumble.

How did you add value to the deal?

In the end, I helped the two partners create systems in their business that allowed them to scale fast and triple the number of houses in our portfolio. Then I taught them how to move the assets around to package them for sales as small 4-8 houses per package for sales to passive investors (essentially a rental portfolio).

But.... alas.... greed always creeps in (a human trait I suppose).

What was the outcome?

I asked for my money back, and they surprisingly agreed.

Later they sold packages to our mastermind's group of "NEW" members who ended up with bad deals... including really bad tenants, resulting in alot of vacancies. I found out that they packaged old properties with the new, so lots of house issues caused the houses to be un-rent able in the harsh Iowa winters.

I tried to provide some coaching on some ways to save their investment, but in the end several people went bankrupt!

Lessons learned? Challenges?

My lesson learned was to ensure the company has standard corporate bylaws, and have a honest non-partner be on the board of directors to help guide the company.... and honest practices.

The two partners were Banned from attend any future mastermind events with the group.

Ashley, it comes down to mitigating risk and costs.

1) Your name personally:  Putting the property in your name provides some risk, but if you have a short hold time, and you have a bonded contractor to address any issues (prior, during, and after sale), then risk of liability lowers.

2) LLC: Some people use these to manage finances, taxes, as well as to manage liability. If you hold time is short, and you sell the property as is, then a LLC is not providing the liability protection that most legal advisors recommend. The costs of maintaining a LLC is different in each state ($60 per year in AZ, vs $800 per year in CA).

3) If you are going to buy and sell multiple properties, you can use a C-Corp as well. The advantage is that C-corps can own LLC's (but a LLC cannot own a C-corp). C-corps will allow you to raise capital in additional ways, as opposed to a LLC that has members (... there are ways to divide votes, profits, ownership, and such... but requires legal costs... especially when you come into unique new deals or have a non-traditional sale).

4) Crowdfunding: In lieu of a loan or hard money, you could raise capital using a federal crowdfunding exemption OR a state crowdfunding exemption.  There are many choices at this point in how to legally assign the property to a legal entity, trust, or other business entity. Benefits are that once the deal is purchased - rehab begins quickly, and once it is sold all money goes directly back to investors upon close of escrow.

Investment Info:

Large multi-family (5+ units) commercial investment investment.

Purchase price: $5,200,000

Cash invested: $825,000

Sale price: $11,450,000

48 unit apartment complex that we rezoned to condos and sold each unit individually
Our group was
1) Those bringing a skill or trade to the project
2) Those bringing only money

One key was being grandfathered from the parking requirement per unit.

Each unit was updated, which was difficult since the square footage of each unit varied between 302 square foot and about 850 square foot.

Our mastermind included experts in Branding, due diligence, analysis, construction, and electrical.

What made you interested in investing in this type of deal?

We were part of a mastermind group and wanted to take the practices of what we learned at a conference together and apply it in real life. It is super scary to do projects alone, but when you get the right people with a positive attitude, along with integrity, then a lot of the scary things become more of tasks to accomplish together.

How did you find this deal and how did you negotiate it?

After the conference, we had a group of about 20 people committed to do a deal together.
One of our guys on the project became the deal maker, and the rest of the team were due diligence.
Because there was a lot of hair on the deal with respect to attempts to convert the project from apartments to condos in which paperwork was not done correctly, we were in a strong negotiation position to reduce the purchase price down over a million dollars. The deal was one that was aging on the MLS.

How did you finance this deal?

We financed it 100% by friends and family.

How did you add value to the deal?

This project really required a team to mastermind which way we were going.... from restoring it to the 20's vibe, making it contemporary loft feel, or basic rehab.

After reviewing the project we found that it would be partial restore (like removing drywall from the beautiful bricks inside the apartments), to acid cleaning the HUGH building, and adding a garden park feel in the center of the closed courtyard.

The condo conversion (from Apartment status) was our focus for getting upside.

What was the outcome?

We sold it and doubled or initial investment in about a year.

Lessons learned? Challenges?

A mastermind group can be great or not, depending on upfront agreements of effort committed.
And if one person is committed to trying to do everything "virtually" without ever visiting the property.... well try to expand their belief system to accommodate the greater good.

Don't rely on email to project manage, nor put it in google docs (or Excel in our case), as you need a software that keeps everyone in the loop so things get done, and deadlines not missed.... also keeps accountable.