Piggybacking on my last post, “The Importance of Being Nimble“, I’d like to blog today about something that is absolutely critical to your ongoing investing success: raising capital.

In my opinion, it is a skill you must develop.

Must.

Not should.

Must.

Once you become very very good at raising capital, any amount of capital, you can accomplish anything.

Start any business. Buy any asset/investment. Build a nonprofit. Run a political campaign. Anything.

Get my point?

OK, now to the ‘how’.

This blog may disappoint some of you because raising capital is actually not a science. It’s an art. And you won’t become an expert by reading this blog. But, I hope it will open your eyes to a few things.

First of all, here are some ground rules.

Rule # 1: GET OFF THE COMPUTER! You cannot raise capital in chatrooms and forums. You have to get outside and network and mingle and talk to people. In person. Find common interests. Love golf or tennis? Join a high end country club. Get involved in charities. Like poker? Get the point? This is especially true for those of us among the ‘younger’ set.

Rule # 2: Relationships. Relationships. Relationships. Relationships. Relationships FIRST.

GIVE first. Focus on the RELATIONSHIP first. You will be engaging with very wealthy people who get hit up all the time for donations, investment opportunities, etc. They can invest with anyone. Why you? Why your deals? You don’t want to be one of those people looking for a hand out. You want to be a friend who also happens to have some good deals from time to time. Take your time. I sometimes know people for over a year before I even bring up a specific deal (after I’ve played tennis with them several times a week, gone to poker night after poker night, went to their parties and vice versa, hung out with their families and vice versa, etc …. they know what I do and most of the time actually end up asking ME if I have anything for them … “I don’t know, John, let me see if you’d qualify”).

This will help you: (a) establish trust and (b) learn more about their personality/demeanor, investment criteria, financial profile, and snap shot of current cash position (the last thing you want to do is put the wrong investment in front of the wrong investor).

Rule # 3: See rule #2.

Rule # 4: You still have to have a GREAT deal. You can have a strong relationship, but you ultimately want to establish a reputation for yourself as someone who deals happen to just follow around wherever you go. You’re a deal magnet. And you work hard to attract those deals and vet them before spending any of your investors’ time and money.

Rule # 5: See rule #2.

Rule # 6: You are not a salesperson. There is no SELLING involved here. After you have a great relationship and a great deal, either the investor will be interested in seeing a presentation or they won’t. If not, just leave it alone. They’re missing out, but just leave it alone. After all, you are not SELLING investors, you are SORTING through investors.

Finally, you must communicate with your investors once they’ve invested with you. You must
keep them informed, briefly and concisely, that you’re working hard on their investment to ensure their return materializes.

So, this should be enough to get you started. Work hard at building relationships first. Consistently bring great opportunities and don’t be bashful about asking for interest (and referrals once they’ve invested and have become cheerleaders of your deal).

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Tags: finance, financing, money, private money, raising capital

Update: The Dow ended up closing down 504 points for the day

The past 24 hours have been about as chaotic a time as Wall Street has seen since Black Monday or possibly the Great Depression. Here are a few highlights:

• We’ve seen one of the top investment banks fail to secure a bidder and file for bankruptcy
• We’ve seen Merrill Lynch essentially forced to be acquired by Bank of America for $50 billion in stock
• We’ve seen shares of AIG fall 80% today (World’s Largest Insurer)
• We’ve seen WaMu shares fall down 25% to a market cap close to $3 billion
• With 40 minutes left in trading, the DOW Industrials are down 399 points or 3.5%
• Alan Greenspan called this a once in a century crisis.

With all that going on, what else could be happening?

A Consortium of 10 Banks Has Established a $70 Billion Loan Program to Protect Liquidity

According to the AP:

The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs.

The banks said the program will be available to participating banks which can get a cash infusion up to a maximum of one-third of the total size of the pool. The size of the loan program might increase as “other banks are permitted to join.” All participating banks intend to use this facility beginning this week, the statement said.

The banks also include Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS.

Could this action from the banks help preserve their own future and that of other banks?
Personally, I think it is a great idea and hope that other major banks jump in and help pool funds to build the loan program. It is forward thinking like that which has been absent from the financial institutions for some time. Perhaps the banks can save themselves — we see that Washington failed to save Lehman — seems that there are few other options left.

Any Thoughts?

Tags: AIG, bank of america, finance, lehman, lending, Merrill Lynch, mortgage

“BOOM!  Here comes the BOOM….ready or not!” - from the song Boom by P.O.D.

Greetings from the Metropolis of Cedar Crest, New Mexico!

With a torn achillies tendon, I hobbled my way into the gym and turned up my Ipod.  The song Boom by P.O.D. (one of the best workout songs there is) came on and I started to tear it up…pain and all.   Pull ups, bench press, back rows……..Arrggh!

I hate working out…but I have a body type that if I do not workout I will ballon.  Bad memories of being called “fat tard” back in the sixth grade start to infiltrate my mind when I move up pant sizes.

Anyway…..

After my workout, I sat on a bench and listened to the song again…..and I started thinking real estate.  “Boom…here comes the Boom…ready or not!” The chorus continued to repeat itself in my mind..and I  thought long and hard about all the articles and books I have read in the past about what is to come in the Real Estate Market.  Unfortunately, the “boom” is not in regards to “good times”…but…bad times for most…and opportunistic times for the smart investor.

One thought that sticks in my mind is what I read in Harry S. Dent’s April 2008 newsletter “….due to the fact that we have three major concurrent bubbles - stocks, real estate, and commodities - all unwinding in a similar time frame within a global economy with very different demographic and bubble trends.  The last time all three major assets cycles peaked was the crash from 1835 to 1843, which led to the depression of the early 1840s”  (there is a lot more to the report….but this caught my eye and my simple mind).  Interesting huh?

“Obviously things are not going well.” - Captain Obvious

So….assuming things are going to get worse (which they are) and assuming real estate values you are going to plummet (which they are).  Also assume that gas prices go up (which they will) and the population starts to hoard it’s money (economics 101). One more thing….assume we are heading into what most experts agree…deflation.  Now the questions are….what is a real estate investor to do?  Is it too late?

What do the experts say?

Well… here are three schools of thought (there are hundreds more…but who would read all that?) that come from a range of so called experts (Harry S. Dent, Robert Kiyosaki, Nouriel Roubini,  Robert Prechter, and  John Williams) and they all have to do with the philosophy that “cash is king” (This is how I interpreted the information and by no means should you think that I interpreted the information correctly…do your own research please):

1. Raise as much cash as possible via LOC (lines of credit…if you can get one), HELOC (Home Equity Line of Credit…if you can get one)…then hold on.  Be a scavenger and cherry pick deals as they come up.  My feeling is you will not see the “cherries” until early next year.  Remember…when the market hits bottom…here is where you will make your money….on the purchase…and you will be ready if you have cash.
2. Sell everything….and hold on to your cash.  Same as number one…but with the thought that if you sell now, most experts believe you can buy it back at 40 - 50 cents on the dollar in the future.  Holy cow!
3. Sell your non-cash flowing properties (i.e. land) and under performing assets now (if you have a buyer).  Also sell your A and B properties.  Hold on to properties that serve lower income populations.  The thought process here is that class “C” apartments, mobile home parks, and retail shopping centers (retail that caters to lower income populations) will provide nice cash flow and probably over perform (if you purchased right) in the coming years.

Smart investors make their money in good markets and in bad ones……which one will you be?  Only time will tell.

OH…..I would love to hear what you are doing to prepare.  If you are not…I want to hear from you anyway..so please comment….

Until next time…..rob

Tags: cash, cashflow cash flow, depression, Economy, finance, Harry S. Dent, heloc, investor, real estate, Real Estate Investing, recession

Banks require a preliminary title report on all real estate transactions. The preliminary title report serves many functions, but one that could cause you to loose a great deal on your next investment is the Chain of Title.

Most lenders require a title company to give them a 24 month chain of title. This simply is an overview of all individuals or entities that have owned the property in the last 24 months. Investors should pay careful attention to the property they are buying and who has owned them previous to the sale.

Some lenders and loan programs only allow one other individual to own the property in the last year. Banks look at the flipping of properties very closely. If a property is flipped too many times they may decline the loan. They could also ask their borrower or loan officer to provide documentation that the transaction is at arms length (the transaction is between unrelated parties).

The reason Banks pay careful attention to the 24 month chain of title is fraud. There are markets that the value of homes have been artificially inflated by properties moving from one borrower to the next with $10,000 to $100,000 added to the purchase price each time. There are reported cases of properties being sold to buyer A, then to buyer B, then to buyer C, then back to buyer A, and then to buyer D. All the parties were related in some manner and this fraudulently drove the price and demand up for the property. Although this generally does not happen in a down market, the flipping of properties is closely scrutinized by both lenders and title companies.

In a down market foreclosures can change hands several times in a short period. Unfortunately there are lenders that only allow a property to change hands 1 or 2 times in a year. If your property has changed hands frequently you may be looking for a new lender.

The good news is there are several lenders that only look at the chain of title and do not hold it against you. A couple things they look for is almost common sense. Are the transactions at arms length and what are the increases in purchase price from buyer to buyer? If the transaction is fraud free it will be no problem.

How do you know which lenders and banks have no issues with chain of title? You don’t. Your loan officer or loan broker better, when interviewing your loan officer this is a question you should ask about. Most loan officers that have a track record with investment properties (and fix and flips) know the challenges and answers to chain of title and at arm length transactions.

Tags: chain of title, finance, flipping, investment property, loan, mortgage, real estate, real estate investing, title

Sales records were just smashed by the new Trump International Hotel and Tower Waikiki Beach Walk condo-hotel. Four hundred sixty-four hotel suites were purchased for over $700 million by investors last Thursday. “Developers said the sales set a record for the amount of residential property, both in dollar value and unit volume, sold in one development on a single day. The previous record was set in December 2005 when Vancouver-based Intrawest Corp. sold 318 suites in the first phase of a Maui resort for $425 million US.” The project will begin construction next month, and is slated for completion by the middle of 2009.

Trump has recently become the king of licensing, by selling his name to real estate projects around the country. With to no little investment in these projects, his company is looking more like Marvel Comics (another licensing firm) then a true real estate development firm.

Tags: condo, condotel, developer, Donald, finance, hotel, licensing, sales, Trump