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Forums » Seeking Financing, Money, or Loans » What to do if you want to invest outside real estate.

What to do if you want to invest outside real estate. Subscribe to What to do if you want to invest outside real estate.

31 posts by 8 users

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· Rancho Bernardo, California


So many times in my experience in seeking funding I run across professional investors that would like to diversify out side real estate. The reasons range from have made a lot of money to not making enough (lost money). Some diversify because they simply want to try something different. Granted real estate is one of my favorite games but recently I got involved with the pet industry and am loving it.

The industry is recession proof and growing at a modest $2B per year for the past ten years. I put a small sum into a company startup that has some new designs for pet toys and biodegradable nontoxic liquid solutions. The margins run from 400 % to 1,900 % and have retailers of all sizes and distributors waiting to order. A unique situation!

Management is experienced and agressive and the company will be doing payback plus stock ownership with an IPO which will return 20 to 40 times my investment.

Definitely a good alternative in diversification.


Real Estate Investor · Wheat Ridge, Colorado


OK, so what are you asking for? You're a brand new member with zero track record here. You seem to be wanting investors in your pet toy and "biodegradable nontoxic liquid solutions" business. You claim margins of 400%, which is clearly impossible, since the margin is (selling price - cost) / selling price, and cannot possibly be greater than 100% even if you get your product for free. You put no information on your profile, use the name Rick Harrison yet use the useid Xander1944.

Most folks here invest in real estate. That offers good security in the form of property. What are you offering in security?

How long has your business been in existence? What are your sales? What's your sales model.

Small_flying-phoenixJon Holdman, Flying Phoenix LLC


· Rancho Bernardo, California


Jon,
Yes I am a new member on the form. I joined primarily to see what kind of personnel were watching and "listening" not to start an argument.

No I didn't place anything in my profile, yet. As the days go by and I have a chance to "update" it I will.

When I sold some property I was in the mood to do something else besides paint walls and pull weeds. I had been in business for 20 years before real estate investment came along. And by margins I am talking about the cost of raw material, bottling and labels . When that cost is less than $1.50 and you sell it for $16.95 the margin would be what?


Real Estate Investor · Wheat Ridge, Colorado


If the cost is $1.50 and the selling price is $16.96 the margin is ($16.95-$1.50) / $16.95 = 91%. Since your $1.50 is the cost of the stuff and packaging (and, I assume the cost to get it into the bottles and to get bottles into a box), that number is the COGS - cost of goods sold. So, that margin is the "gross margin". You have a number of other costs that will eventually get added on. If you're selling direct, you will have advertising (nobody buys anything they don't know exists), selling (e.g., web sites, credit card charges), insurance, inventory (e.g., the interest on the money you used to buy the boxes of stuff in the warehouse and the cost of the warehouse), shipping etc. Collectively, those costs are called "selling, general, and administrative" or "SG&A". Those get subtracted off, too, and the margin including those is a net margin.

It sounds like you're looking for investors in your business. For one, that is a problematic thing to advertise publicly, like you've just done here. That's because when you ask for investors you're "selling securities" and fall under the regulation of the SEC and state regulators. Further, if you're doing that publicly, you're doing a public offering, which is VERY heavily regulated. Even to do a private offering you will have significant costs to do the necessary paperwork. Tens of thousands of dollars in legal costs would be typical. That would give you the ability to recruit people you already know. You'll spend a million or more for the paperwork to do a public offering.

For another thing you have to determine a value of your business. If you say "I want $100K and I'll give you a 10% stake", you're saying "my business is worth $1 million." That may be true, but you better have the data to prove that. That data would be your actual number from the several years you've already operated the business.

If this is just an idea, your best bet is self funding. If you've sold some property, use that cash. Or money in the bank, credit cards, cash out your 401k or whatever. Failing that, a loan from friends or family or a credit union might be a starting point.

Small_flying-phoenixJon Holdman, Flying Phoenix LLC


Real Estate Investor · Springfield, Missouri


Don't forget factoring receivables!


· Rancho Bernardo, California


Thank you both for the comments and advice.

No I am not "selling shares", merely trying to discuss a business proposition I invested in with some funds I diverted from a house I sold. I like the pet business as it is something I feel comfortable with and the industry is, from a historic standpoint, a strong growing one.

Back in the days when I did a lot of stock market investment I got lucky a few times and got in on the beginning of some new businesses. I feel the same way about this pet thing but even more so because the stock I bought hasn't been offered to the public yet. Yes I know its a gamble but one I did some research on and is not a shot in the dark like so many stock market investments I've done.

Sure I'd love for others to invest in it so the company could get off the ground, produce some inventory and begin marketing, but that is up to the management to do...I guess? My thoughts on the subject are simple ...if someone wants to know more about what I did and want to learn more I'll be happy to tell them what I can.

The reason they are seeking funding is to produce a sizable inventory and put the marketing plans into gear. There are a number of major chains interested in the products but there isn't enough money in the "pot" yet to allow them to order. They took the time to get the products USDA and NSF certified and have everything lined up ready to push the GO button when funding comes in.


Real Estate Investor · Atlanta, Georgia


Originally posted by Rick Harrison
The reason they are seeking funding is to produce a sizable inventory and put the marketing plans into gear.


As Jon indicated above, if the management team believes that their margins will be between 400-1900%, they clearly don't have much business experience...

And as someone who has done a reasonable amount of early stage investment, I can tell you that I wouldn't invest in a weak management team regardless of how good the product was (likewise, I'd invest in a strong management team with a record of success even if the product were mediocre)...

Just something to keep in mind...

J Scott, Lish Properties, LLC
Telephone: 770-906-6358
Website: http://www.123flip.com
http://www.123flip.com


· Rancho Bernardo, California


Hi J. Scott,
Well I have to apologize for that margin mix up but Jon set me straight. The "management" didn't tell me 400 to 1,900, that was my brilliant work. As Jon said it is 91% and please do not associate my stupidity in this matter with the management.

Thanks for your comments.


Real Estate Lender · Fort Pierce, Florida


Rick

There are rule (laws) that cover the solicitation for investment in private companies.

One set of rule govern who the company can solicit.

Another set of rules govern who can do the soliciting.

Your posts here in this thread are probably in violation of both set of rules.

Contact a securities attorney to discuss how you can solicit for this company and not run afoul of the SEC.

Good Luck.


· Rancho Bernardo, California


Kevin
Thanks for the advise and I will not make any efforts to promote, sell or influence until I have contacted counsel. Nothing is easy anymore. :cry:

But I still like my investment. :D


Real Estate Investor · Wheat Ridge, Colorado


For this sort of an idea, I'd recommend "The Four Hour Work Week" by Tim Ferriss. He has some really good input into how to arrange the exact sort of business you're talking about. He has a business organization chart in that book that shows you exactly how to set this up. He also has list of companies that will do all the various steps to make this happen.

Producing a "sizable inventory" is a recipe for disaster. In any business, inventory is a money pit. Its something you want to minimize.

Waiting for the funding to come along to get something like this going means you're not going anywhere. These deals are always self-funded at the start. Start small and conserve cash.

Small_flying-phoenixJon Holdman, Flying Phoenix LLC


· Rancho Bernardo, California


Jon,
"A Sizable Inventory is a receipt for disaster".

You might be right, but not in this case.


Mobile Home Investor · Spanaway, Washington


Several Bankers have suggested I have a talk with their investment bankers over the years. I went a couple of times. Both stated I was top heavy in real estate and needed to sell the real estate and put all the money into stocks, bonds, or mutual funds. The only reason they recommend this is they get a commission on these items. Every buy or sell order they get paid. They make too many buy and sell orders and soon all your money has moved from your pocket to theirs. In real estate this is similar to the realtor in the middle. With real estate however, you do not need a middle person so more of your funds are available for investing. If real estate is not your thing - then by all means move your funds to where you are comfortable with it. The investment you seem interested in sounds like a penny stock. Good Luck on your investments wherever you decide to place them!


· Rancho Bernardo, California


Reality man,
Yes you are right. I experienced the same problem when I was doing Stocks. Got tired though of taking the Stock brokers advise and winding up with pennies profit. I started doing my own research and made fewer investments so I paid less commissions. I didn't have to pay any commission for the units I bought in that company though. Right now the value is basically "0" but that is before other investment and the IPO.


Real Estate Investor · Atlanta, Georgia


Originally posted by Rick Harrison
...but that is before other investment and the IPO.


You seem very focused on IPO (both here and in your original post). I don't know how familiar you are with starting and building businesses, but if the management team at this company is telling you that they're already working towards an IPO, that's another indication that they probably aren't very seasoned.

First, you clearly think that the purpose of an IPO is to pay off the investors. While that might be true in certain industries where investors put in significant capital and take significant risk, in most industries, companies don't IPO in order to get investors paid off.

For the most part, IPO serves to raise capital for business expansion, often into new markets or new products. What are the new markets and products that this company is already considering before they even start acquiring customers with their first product?

Also, I'll point out that there are about 400 reasonable sized pet toy manufacturers and suppliers in the US. How many of them have gone public? (I assume this information is in the Competition section of the business plan they provided you)

Given that number, what makes you think this particular company is going to beat the odds?

I'm not saying this is a good or a bad investment (there's certainly not enough info to make that determination), but clearly you're looking to convince people on this forum that it's a good investment. While I'm guessing that most of the people here are smart enough to figure out that there are some major holes in your pitch, I just want to help the others realize it as well.

And, if based solely on the information you've provided, if you believe this is a good investment, you might want to do some additional research...

J Scott, Lish Properties, LLC
Telephone: 770-906-6358
Website: http://www.123flip.com
http://www.123flip.com


Real Estate Lender · Fort Pierce, Florida


Just a thought on the IPO angle.

A few years ago, a private company needed to have at least $100,000,000 in revenue before they could even THINK about an IPO. I'm sure that figure is higher today as well as having several more stipulations (hoops to jump through).


Realtyman, you spoke with an Investment Broker. When I was an Investment Broker, I spoke to several people heavily invested in RE. It was a waste of time for both myself and the prospect. They were convinced that they needed the control of their financial situation that owning RE permitted. Their game plan was to buy many properties and sell them only when they needed money (cash).


· Rancho Bernardo, California


Hey Guys,
Remember that not all investments start at 20M or 50M or 100M. Some ventures actually start at 5M. Not everything is located in a perfect world governed by perfect rules. Some times an investment is made based on things having to do with experience and gut feel. Remember Steven Jobs? He marched around the streets looking for someone to invest. As did Bill Gates. Where are your comments for the 90% of us without leverage?


Real Estate Investor · Atlanta, Georgia


Originally posted by Rick Harrison
Remember Steven Jobs? He marched around the streets looking for someone to invest. As did Bill Gates. Where are your comments for the 90% of us without leverage?


Steve Jobs and Bill Gates are the exception to most business rules (and today probably wouldn't have received any substantial funding without a successful management team on-board their companies).

First, they were disruptive innovators who generated new markets -- they didn't just create new products within existing (and mostly commoditize) markets.

Second, they started with IP (Gates from the licensed version of DOS and Jobs with several hardware patents). IP has intrinsic value outside the business, and can serve as collateral for investors who are someone averse to risk.

Third, they had a vision that nobody before them had, creating a business niche out of nothing (Gates with the idea that open software was the key component to personal computing and Jobs with the idea that personal computers could be affordable and easy to use). It was clear early on that one of these companies was going to make a lot of money, and investors on one side or the other were going to make a lot of money. Turns out both sides did.

So, if you want to use Gates and Jobs as your model for success, I would ask: What successes has your management team had; what are your disruptive innovations; what is your IP; and what is your vision that will create a fundamentally new business segment that currently doesn't exist?

Without any of those things, it sounds to me like you're a traditional business attempting to compete in a saturated and commoditized market that may be growing consistently, but without an opportunity for one company to stand out.

Given that, you may be successful, but the promises of great returns that you are making are completely unsubstantiated.

J Scott, Lish Properties, LLC
Telephone: 770-906-6358
Website: http://www.123flip.com
http://www.123flip.com


· Rancho Bernardo, California


I did not intend to try to compare the project to the scope or nature of Jobs and Gates start ups, merely to point out that some businesses start out very small and have potential. I personally knew Steve when he was marching from building to building, appointment to appointment looking for funding support....thats before the activities you make your point with.

This project has some serious advantages over the hundreds that populate the "competition", but it is not the start of a new industry.


Real Estate Investor · Atlanta, Georgia


Originally posted by Rick Harrison
This project has some serious advantages over the hundreds that populate the "competition", but it is not the start of a new industry.


Great! That's the information that you should be sharing if you really want to convince people to invest...

What are the advantages?

J Scott, Lish Properties, LLC
Telephone: 770-906-6358
Website: http://www.123flip.com
http://www.123flip.com




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