It's not very difficult to understand. Tom, what I am saying is that I can buy out an already existing business.
The total purchase price is $690k. The down payment is $250k. The dividend would be financed through a note over x amount of time.
The ABL will loan up to 80% of the assets that are in the business usually Accounts Receivables. There are other factors as wel such as FF & E + Inventory.
In this particular example I gave you 80% of $440,000. It's not very difficult at all Jay. If an underwriter could vet all necessary financial documents or a lender you'd see the initial LTV is much greater than the asking amount.
In addition all the risk is mitigated through a double escrow. Similar to a real estate purchase you already have an ABL (B-C) lined up in advance.
The first part of the transaction is directly connected to the second. It's a simultaneous close. They both close at the same time.
One half of the transition takes place in the morning & the next that same day in the afternoon. This should be familiar to anyone who is familiar with real estate.
Additionally, whereas in a real estate transaction you can vet the value of a property over time via equity.
In this transaction the value is in the business itself. That means as long as sales are above a threshold you are gaining control of six figures or more.
The question that I asked is which source of funding makes more sense? Transactional funding (short-term), hard money (higher interests), traditional (conventional swing loan), or financing all through the ABL?
Jay, the ABL will lend up to 80% of the value of your assets. Therefore, you wouldn't need any of your own capital. The allotted amount could still be used to fund the entire transaction.
The only difference is that you're not actually buying it first meaning you don't own it. You'd be using their funding for the down payment & still be using a double escrow to mitigate all the risk.
Does that make sense?
I'd be obliged if you could refer me to anyone that you know.
Hey BP,
Hope all is well!
I realize you all are very busy and you have a lot on your plate.
Your time is your most valuable asset you have and I respect that.
I wanted to personally reach out in hopes that someone would be able to assist with a conundrum.
I certainly don't want to waste it or interfere with your schedules, having studied marketing for the past few years, I understand the needs your business faces and the challenges that you have.
Perhaps you could recommend any investors that could facilitate this transaction.
For the past three years I've successfully studied & been involved with over 400 various industries as a designer & marketing consultant.
Currently, everywhere you look people are buying and flipping real estate.It seems everyone is buying a home, fixing it up a little, and selling it almost immediately for a sizeable profit.
We read about it in newspapers, online, and there were even television shows based on flipping houses.
The flipping real estate business model works great.
But here’s the good news for you . . .that same business model works in many other areas.
You can flip non real estate assets just as easily, maybe easier than flipping houses.
You can also use leveraged buy out techniques to alternatively buy & hold already existing businesses similar to properties also.
Through the use of transactional funding I've realized that I could borrow a $250,000 swing loan from a bank, give that to the seller in morning.That would make the business mine.
Then in the afternoon I could take all the assets that are in the business that I just bought and raise $360,000 (80% of $440,0000) the same day from an asset-based lender.
Then I could take $250,000 of the $360,000 and instantly repay the transactional loan.
Then, I'll have a $110,000 cash windfall in my bank account, which I could now use to run the business and pay myself a big bonus.
The double escrow basically enables someone to do this: I never touch the $250,000 of the down payment monies put into escrow by the lender.
The asset-based lender never hands methe $360,000 check.
They put their money into a second escrow that’s directly connected to the first transaction.
Again, it’s called a double escrow.
Both escrows are set to close simultaneously.
In case this seems confusing let me make it one more level simpler.
The same reason the person or company that made you a loan on your car has little or no risk -- works for asset based lending, too.
You make a down payment of 20% of the purchase price for the car.
You have another 80% they finance.
And if for any reason you don’t make your payments then what do they do?
They take back the collateral.
They sell it and they get all their money back and sometimes even a profit.
So that’s exactly what asset-based business lenders would do.
If for any reason their loan isn’t paid, they would merely come in, take out their collateral, sell it and get their money back.
They file what they call a UCC filing. It’s basically a business-based first lien on the assets. No one else can have a claim on them.
So they’re safely protected. So if for any reason any of these deals didn’t go right, the lender has instant control of the assets.
I've been to several different banks now & haven't been successfully able to acquire the necessary funding.
I've arranged an ABL with a factoring company, however, it requires a bit of creative leverage to finance the entire deal through an ABL.
Are there any preferred lenders preferably in FL that could assist with financing perhaps transactional funding, hard money or private money?
Think about it logically.
You can’t be a follower and expect to ever really become a leader in your field.
It just doesn’t work that way in today’s fast changing world.
Instead, you need to see the overlooked opportunities that are all around you and act on the vast sums of untapped income and unclaimed success just waiting to be harnessed.
You probably spend too little time studying the most successful, innovative and profitable ideas people in other industries use to grow and prosper.
Yet, if you start focusing on other industry’s success practices, you’ll be amazed at how easily you can adapt these ideas to your own business situation.
Suddenly, you’ll see significantly better ways to produce significantly better results from the same time, manpower, effort, activity, and capital.
Vision isn't easy.
As a result, most people let the opportunity of a lifetime slip through their fingers & live to regret it; but in this case I could make it easy for you to Not let this one slip away so that you can take advantage of this unique opportunity with zero risk.
Instead, you need to see the overlooked opportunities that are all around you and act on the vast sums of untapped income and unclaimed success just waiting to be harnessed.
In a recessionary economy like this, some 30 million people could be out of work -- they lost their jobs, got put on shortened work week.
Millions will be (or are, right now) aggressively looking for business opportunities they can purchase or start.
Though most of them don't have a lot of cash to invest, they still need income, they need work, they need productive activity that makes them money and keeps them feeling worthwhile.
I believe there’s not one business owner or startup I’ve ever met in North America (and probably the world) who couldn’t, who shouldn’t broaden their perspective and think about how to grow yourself a small or large business empire.
And that can mean nothing more than multiplying the size of your current business many times through external leveraged buyout acquisition activities.
Or it can mean multiplying it through a roll up.
Or it could mean buying complimentary-type product and service businesses.
Most people in business - or wanting to start their own business - set their sights too low.
They’re often content merely to have a so-so business that makes them a barely livable income.
But why start a business that has a one in thirty chance of even making it five years –when you can acquire a solidly profitable existing business that’s a huge, proven moneymaker that has a high certainty of working - using none of your own capital?
I’d very much like to talk with you exploring options and opportunities is always a worthwhile process for both sides.
It broadens each other’s mindset to how much more might be possible and in how many more ways that could be accomplished.If you’re excited about the possibility of seeing more, doing more, solving more, winning more, and succeeding more there might be a way I can be more directly involved in guaranteeing your future success.
Think about this.The “worst” that can happen if it's not an ideal fit is that you get an actionable strategy that benefit us both at no cost.
The best that can happen is we work together one on one to create a viral effect the likes of which haven't been seen before.
All the best!
Hey BP,
Hope all is well!
I realize you all are very busy and you have a lot on your plate.
Your time is your most valuable asset you have and I respect that.
I wanted to personally reach out in hopes that someone would be able to assist with a conundrum.
I certainly don't want to waste it or interfere with your schedules, having studied marketing for the past few years, I understand the needs your business faces and the challenges that you have.
Perhaps you could recommend any investors that could facilitate this transaction.
For the past three years I've successfully studied & been involved with over 400 various industries as a designer & marketing consultant.
Currently, everywhere you look people are buying and flipping real estate.
It seems everyone is buying a home, fixing it up a little, and selling it almost immediately for a sizeable profit.
We read about it in newspapers, online, and there were even television shows based on flipping houses.
The flipping real estate business model works great.
But here’s the good news for you . . .
that same business model works in many other areas.
You can flip non real estate assets just as easily, maybe easier than flipping houses.
You can also use leveraged buy out techniques to alternatively buy & hold already existing businesses similar to properties also.
Through the use of transactional funding I've realized that I could borrow a $250,000 swing loan from a bank, give that to the seller in morning.
That would make the business mine. Then in the afternoon I could take all the
assets that are in the business that I just bought and raise $360,000 the same day from an asset-based lender.
Then I could take $250,000 of the $360,000 and instantly repay the transactional loan.
Then, I'll have a $110,000 cash windfall in his bank account, which I could now use to run the business and pay myself a big bonus.
The double escrow basically enables someone to do this: I never touch the $250,000 of the down payment monies put into escrow by the lender.
The asset-based lender never hands me
the $360,000 check. They put their money into a second escrow that’s directly connected to the first transaction.
Again, it’s called a double escrow.
Both escrows are set to close simultaneously.
In case this seems confusing let me make it one more level simpler.
The same reason the person or company that made you a loan on your car has little or no risk -- works for asset based lending, too.
You make a down payment of 20% of the purchase price for the car. You have another 80% they finance.
And if for any reason you don’t make your payments then what do they do?
They take back the collateral.
They sell it and they get all their money back and sometimes even a profit. So that’s exactly what asset-based business lenders would do.
If for any reason their loan isn’t paid, they would merely come in, take out their collateral, sell it and get their money back.
They file what they call a UCC filing. It’s basically a business-based first lien on the assets.
No one else can have a claim on them. So they’re safely protected.
So if for any reason any of these deals didn’t go right, the lender has instant control of the assets.
I've been to several different banks now & haven't been successfully able to acquire the necessary funding.
I've arranged an ABL with a factoring company, however, it requires a bit of creative leverage to finance the entire deal through an ABL.
Are there any preferred lenders preferably in FL that could assist with financing perhaps transactional funding, hard money or private money?
Think about it logically.
You can’t be a follower and expect to ever really become a leader in your field.
It just doesn’t work that way in today’s fast changing world.
Instead, you need to see the overlooked opportunities that are all around you and act on the vast sums of untapped income and unclaimed success just waiting to be harnessed.
You probably spend too little time studying the most successful, innovative and profitable ideas people in other industries use to grow and prosper.
Yet, if you start focusing on other industry’s success practices, you’ll be amazed at how easily you can adapt these ideas to your own business situation.
Suddenly, you’ll see significantly better ways to produce significantly better results from the same time, manpower, effort, activity, and capital.
Vision isn't easy.
As a result, most people let the opportunity of a lifetime slip through their fingers & live to regret it; but in this case I could make it easy for you to Not let this one slip away so that you can take advantage of this unique opportunity with zero risk.
Instead, you need to see the overlooked opportunities that are all around you and act on the vast sums of untapped income and unclaimed success just waiting to be harnessed.
In a recessionary economy like this, some 30 million people could be out of work -- they lost their jobs, got put on shortened work week.
Millions will be (or are, right now) aggressively looking for business opportunities they can purchase or start.
Though most of them don't have a lot of cash to invest, they still need income, they need work, they need productive activity that makes them money and keeps them feeling worthwhile.
I believe there’s not one business owner or startup I’ve ever met in North America (and probably the world) who couldn’t, who shouldn’t broaden their perspective and think about how to grow yourself a small or large business empire.
And that can mean nothing more than multiplying the size of your current business many times through external leveraged buyout acquisition activities.
Or it can mean multiplying it through a roll up.
Or it could mean buying complimentary-type product and service businesses.
Most people in business - or wanting to start their own business - set their sights too low.
They’re often content merely to have a so-so business that makes them a barely livable income.
But why start a business that has a one in thirty chance of even making it five years –
when you can acquire a solidly profitable existing business that’s a huge, proven moneymaker that has a high certainty of working - using none of your own capital?
I’d very much like to talk with you exploring options and opportunities is always a worthwhile process for both sides.
It broadens each other’s mindset to how much more might be possible and in how many more ways that could be accomplished.
If you’re excited about the possibility of seeing more, doing more, solving more, winning more, and succeeding more there might be a way I can be more directly involved in guaranteeing your future success.
Think about this.
The “worst” that can happen if it's not an ideal fit is that you get an actionable strategy that benefit us both at no cost.
The best that can happen is we work together one on one to create a viral effect the likes of which haven't been seen before.
All the best!
Hey BP,
How's everything?
After due diligence I've found a unique opportunity here in Tampa for my first Buy & Hold / Investment Property.
Check it out here: http://tampa.craigslist.org/hil/bfs/5288047735.htm...
You recommendef not doing an FHA for the first purchase because of the limits.Are there any other options other than FHA because I
Hey, Alex + Vincent Thanks for your swift reply!
I'm an interdisciplinary designer & marketing consultant
I'm fairly new to RE, however, don't think of me as naive.
This post gave me the idea of House Hacking:
https://www.biggerpockets.com/blogs/2872/blog_post...
I learned how to do a simultaneous close from a brilliant man & mentor for a different purpose.
That specific technique piqued my interest in REI & seemed practical for what I'd like to do & simultaneously allow me to find housing.
I love what I do it's profitable, however, I want to do more.
This is my vision:
I'm initiating a new startup co Seven Times Eight a new platform for co-working & education technology.
After months of strategic planning & close examining we’ve decided to put our initial focus on uniting the best and brightest minds to solve the ongoing problem of education reform.
We plan to launch around Jan '16. Super excited. Would love an opportunity to work with you all one on one.
We are offering an extremely affordable and flexible space for people to host their groups and events in addition to offering educational courses.
Tony Robbins says that
"The path to success is to take massive, determined action."
My main concern was actually being able to buy & hold the property temporarily then sublet it & eventually be able to get another house in another city.
Ideally using a double escrow would be extraordinary for this scenario since I could do a master lease with the option to buy at a later time & date.
If you negotiate a pure “earn-out” or performance-based purchase deal to buy one property(or
assets of a property) after another, and get 6-9 month options before I had to close it,
I can
advertise that property or assets through all kinds of local, regional national or international
advertising media that are on or off-line,
paying only on performance for the advertising -
meaning, you only pay for the ads if they deliver a buyer that closes.
The object here, on any purchase option I do, is to give the seller a pure earn-out and pay
them out of a future sale or earnings.
My goal in selling the property to another buyer is to
get a decent upfront payment if possible,
or a larger variable payment that's 10 to 25% above the
payments I would be making to the seller.
Worst case, your buyer defaults and you either take the property back and resell it – it’s sort of
like a buy-here, pay-here car lot.
Or you give it back to the original owner, who gets to keep all
you've paid him or her so far.
But all you’ll have paid them came from monies other people paid
to you first.
Does that make sense?
Additionally with the links you provided I thought I would ask you if they based the criteria on credit or not as far as being approved.
As long as I have the down payment monies or if I take one of the other options you suggest at 0% down would there be any ordeals?
My goal with subletting office space scenario two is no different from the first scenario aside from it being commercial space. I already have the strategy in place as far as funding is concerned.
Since I'm virtually unknown & this is my first buy & hold I wanted to garner direct experience from members based on their personal experiences.
Thanks again!
You're the best.
Talk to you soon.
Most people make the mistake of complicating business more than it needs to be.
For example, building and increasing your business may seem intimidating and complex, but in reality
there are only three practical ways this can be achieved:
You can increase the number of clients.
You can increase the average sale per client.
You can increase the number of times clients buy.
Therefore, to build your business (and your income):
Calculate the number of clients you now have — and how you can increase your number of clients by 10% in the next year.
Figure out exactly how much, on average, each of your clients spends with you now — and how you can raise that average by 10% in the next year.
Determine how often clients are currently purchasing from you — and find a way to decrease the time between transactions by 10%.
Taken together, those three incremental 10% improvements will combine to expand your business by a total of 33%.
And frequently, that will result in a doubling of personal income without much of a difference at all in operating costs.
In short, most businesses are constantly awash in a sea of potential opportunities for growth and expansion.
All that’s required is:
The insight to see how these opportunities can be connected.
Knowledge of the proven strategies other people have used successfully in similar circumstances.
The ability to leverage these strategies together to produce greater income and success.
When a person understands what to do, they also understand exactly and precisely how they can get anything they want in their business life and career.
I'm initiating a new startup co Seven Times Eight a new platform for co-working & education technology. My background is marketing and design. For the past three years I've been working with entrepreneurs, freelancers, hackers and designers.
After months of strategic planning & close examining we’ve decided to put our initial focus on uniting the best and brightest minds to solve the ongoing problem of education reform.
We plan to launch around Jan '16. Super excited. Would love for you to pass the prelaunch site on to 5 friends who you think may appreciate it.
We are offering an extremely affordable and flexible space for people to host their groups and events in addition to offering educational courses.
We’re fostering the development of healthy communities and people who share common interests while simultaneously empowering creative individuals through mentorships and educational resources.
If you’re excited about the possibility of seeing more, doing more, solving more, winning more, and succeeding more there might be a way I can be more directly involved in guaranteeing your future success.
Feel free to reach out if you have any further questions.
Thanks for your help. You're the best!
Hope to see you soon!
Thanks for your swift reply, Vincent
So you would recommend a multi for my first buy & hold?
Should you use MLS to discover the best multis or a different lead generation source?
When considering pricing what is the range I should look into?
What advantages would a multi have over a SFH if any?
Since you can only have one FHA loan at a time what option is best because I'm currently in Tampa looking to relocate to Miami.
All the best!
Hey, BP
Hope all is well!
I am fairly new to the RE world & I'm looking to purchase my first Buy & Hold / Investment Property simultaneously while also building my own startup using a similar method for commercial space I would love to run a few additional questions by you when you have the opportunity.
I read your post on how to buy your first investment property & home simultaneously.
According to FHA site: "To prevent circumvention of the restrictions on making FHA-insured mortgages to investors, FHA generally will not insure more than one principal residence mortgage for any borrower."
Additionally, "FHA will not insure a mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance."
To further clarify this issue, FHA loan rules also add, "Any person individually or jointly owning a home covered by an FHA- insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations as described in HUD 4155.1 4.B.2.d."
Those types of circumstances should be discussed with an FHA representative and/or your loan officer. Check with FHA if you have circumstances that might be considered eligible for an exception to these FHA loan rules.
It's important to note that borrowers who do not adhere to the FHA occupancy rules could be considered to be acting in "bad faith" on their FHA mortgage loans.
Contact your loan officer or the FHA directly to learn what the consequences of acting in bad faith on an FHA loan may be in your state.
Read more: http://www.fha.com/fha_article?id=371
After doing additional research I came across this strategy: intellibiz.com/doubleescrow.html.
This seems like it could be the most efficient workaround. I could do a master lease with an option to buy at a later time.
My primary concern is the restrictions on obtaining another owner occupied home in another city.
Does this strategy you conceived provide that option?
Additionally, will I be approved for an FHA loan without established credit?
Any insight you could provide would be greatly appreciated.
I'd be obliged if you could walk me through this step by step process.
Please let me know your thoughts.
You're the best.
Talk to you soon!
Sharon, what is the best strategy to wholesale commercial properties?
This is a disruptive idea & I would like to initiate as soon as possible.
I would love to know how you would execute a master lease with an option to buy.
What is your professional experience & is there any advice you have for me?
All the best!