Well, pretty much everybody raised their hands at my club meeting last week when I asked this question.   Boy you can’t swing a dead cat around without hitting an investor who is looking for private money these days huh?  To be frank - I’m getting kind of bored hearing so many investors tell me this same problem over and over again.  The scariest part is that some of these investors are brand newbies or they don’t have any deals what-so-ever to offer a private lender.   Come again?

Now I don’t mean to sound so grouchy about this subject, but raising private money is no different than finding deals and finding buyers.  It’s work work work!  When I ask investors what they are doing to “raise private money” I am getting pretty much the same answers… which is not much.   Now call me crazy, but if we aren’t marketing to folks who may have money to lend us - then how do we expect to Raise Private Money?  Or if our only form of “advertising” is going to be real estate meetings where other investors are looking for money too - good luck.  No my friends, this simply won’t do.

The only way that I know of to raise money successfully is to advertise for it.  And by advertising I mean YOU are the advertisement!  Marketing non-stop, all the time, telling everyone you know (outside of your investor world) in some form or another.  Just like you would be doing to buy houses and to find buyers. 

In a nut shell:

1.   Tell everyone you know that you are a real estate investor and tell them about your real estate investing business.  Tell your neighbors, your friends, your family, your Doctors, dentists, lawyers, plumber, every new person you meet… everyone!   When you start with this -people inevitably are going to want to know more about what you do.

When you get to the point when you have a deal or two or five under your belt - then move on to a whole marketing campaign on Raising Private Money.  This is what I do now.  I send out direct marketing to folks ( I bought a list from a list broker) letting them know that I can teach them how to earn 8 - 12% on their money by being a Private Lender.  Just like I do to find sellers of homes.  I send out direct mail saying that I can buy their home.  Just like I am about to do to find buyers - market to them!

2.  Have deals to tell people about!  Duh… this is a no-brainer right?  Well I am surprised when I ask investors if they have deals already in place to offer a private investor and they say No. (Or worse, they are not even currently marketing for deals.)  Wowee Kazowee.   

It is a two fold operation that must be happening at all times.   Talking to everyone you know who might have money - either in the bank, in a 401K, in a pension, stuffed in their mattresses - and getting deals all the time. 

3.  How do you have deals all the time?  Market, market, market.  How can an investor be worried about raising private money if you don’t have deals to talk about?  I hear it all the time… “well I don’t want to find deals if I don’t have the money to buy them”.  This is the wrong attitude all together.  When you have really good deals - you will find the money or the money will find you -period.  Notice that I said - “good deals”.   I have had my own experience of having a hard time finding money for deal or two.  I recognize it was because they weren’t good deals after all!  Just because we know of a property that is for sale - doesn’t mean it’s a deal.  Oy - I get shivers down my spine at the hard lessons learned there…  Rule #1 - know your business!

Now - Raising Private Money is a whole workshop in itself.   But the bottom line is that we must work our real estate investing business all the time.  Finding private money is a lot of work.  But this whole business is a lot of work.  If you want deals - you must work hard to get them.  If you need private money, you must work hard to find the people who might be interested.  If you need buyers - you must work hard to find them.  It’s not brain surgery - but it is hard work.  (Did I mention it is work?)

If we don’t do all of this, all the time, then forgetta ’bout it.   Find another hobby. This business is not for you.

(Again - sorry for being Ms. Grouchy pants right now.  I think that after hearing about 30-40 investors tell me in the last week that they were not really doing any of the above to accomplish their goals for raising private money - I had a moment of OH -SNAP!)

Photo Credit: Refracted Moments™

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Tags: money, private money, real estate, real estate investing, real-estate-finance

Remember the Oscar Wilde play, “The Importance of Being Earnest”? Well, I’d like to blog today about “The Importance of Being NIMBLE.”

The turmoil in the markets and the contraction in the global economy reminds each of us of the old cliche: “the only thing that’s constant is change.” So it is in business and, especially, investing.

My business partner and I founded our investing company with one very simple idea in mind: we wanted our business to outlive us. We want it to be around long after we’re gone. So all of the major decisions we make are colored by a long term perspective. What’s best long term for Live Oak? What’s best for our investors? How do we ensure that the projects we’re developing are benefiting the long term success of Live Oak (not just the next five plus years, but over the next decade and beyond) and have our investors benefit in much of the same way.

For example, our private equity company has only invested in commercial real estate to date. However, we are now expanding that. We are now investing in businesses and the passive cash flows they produce. Our criteria: the businesses must have a very high rate of return (20%+ per annum), are likely to be wildly successful even in down economies, and the management teams behind those businesses must also have a long term vision for their companies.

So our latest project, for example, is investing in a business that develops multi group dental centers and manages the practices within those centers, across the US. Dentistry is a high cash collection business, 99% of all new dental centers succeed (i.e. remain open and thrive beyond the five year start up phase), and for every 6,000 dentists retiring this year only 4,200 are coming out of dental school. So, we think this is a great play (it doesn’t hurt that the returns are phenomenal). And 65% of all Americans visited a dentist last year - up 10% from just 10 years ago (and as the population ages, particularly the baby boomers, that percentage is more likely to go up than down). Yes, there is a real estate component to it (the centers are stand alone office buildings after all) but the investment is really in the business of the dental practices (the returns are higher there than in the real estate actually). It’s an opportunity to get in on the inside of a deal which should produce a high amount of stable cash flows for many years — our investors will be able to invest in these very lucrative medical practices which are not usually open to private investors very often because of the hard work we’ve done and the nimbleness we’ve shown.

We’ve spent over 6 months of due diligence on the project (and, more importantly, all the players involved) so we took our time. But, if we were not nimble and remained closed to investing in only commercial real estate, we would not have this opportunity open up for us. The opportunity opened up for us because of some key relationships we’ve cultivated over many years — again, another thing we take a ‘long term, take your time’ view on (relationship building, that is).

Now, instead of waiting on the economy to come back around before we start seeing some great commercial real estate deals again, etc, we can monetize our nimbleness and continue to provide great opportunities for our investors who have to put their money somewhere while the options of where to place that capital are getting more and more limited by the day (stock market? CDs?). They say: “why NOT throw some capital at a private placement deal with a reputable firm and a strong offering?” Even in the worst case, it can’t be worse than losing 40% of my assets in the stock market! If you’re sitting on $1M+, why not throw 10-20% of that into this deal (as an overall percentage of your portfolio that’s not much risk exposure … and the upside could be enormous).

So, for us, this opportunity will open up other opportunities (for us and our investors). And it’s not the only opportunity. There are still commercial real estate deals and other private placement opportunities to look at. The point here is that all we, at Live Oak, care about is developing great opportunities for our investors and ourselves so that we both can benefit from them for many many years to come (although the dental centers, for example, will stop being developed in 2-3 years, the centers will still be kicking out returns for decades to come most likely or there might be even more lucrative exit strategies sooner to be looked at).

So, I encourage you to keep your eyes open and remain nimble not just during these rough times, but through all times.

I know that we will continue to make that a mantra for ourselves.

In closing, one of my favorite market commentators, John Mauldin, has a newsletter entitled: “The Frontline”. I highly suggest you subscribe to it at http ://www.frontlinethoughts.com/gateway.asp. In last week’s newsletter entitled “The Problem With Deleveraging” he gave a great history lesson on recessions and it was all pretty discouraging, negative stuff. But he concluded by saying:

“All is not gloom and doom. The last major recession and problem period, in the ’70s, saw a number of new businesses start and prosper (Microsoft, Apple, Intel, etc.). Businesses that have access to capital are going to be able to take market share and come out of this recession in much better shape. It is just a recession, after all, and will end. But I would suggest keeping your powder dry and being nimble. There are opportunities which will arise, as they do in every downturn. Just don’t expect this recession to be like any past recession. Make your plans accordingly.”

Who knows. You may be sitting on a business right now that could be the next Microsoft, Apple, Intel, etc. If you have a long term, deeply compelling vision with a business model that can stay nimble while you keep your eyes wide open to the opportunities that are all around you right now, you may be able to generate a wealth of abundance for not just yourself and your loved ones but for generations to come. Maybe even become one of those businesses John Mauldin will write about.

Photo Credit: Mayr

Tags: business, investor, opportunity, real estate, real estate investing

Today I’m in St. Louis and I’ll be here for the rest of the week. I can’t remember the last time that I spent a full month at home. This is the reason that I love this business and got involved in real estate in the first place. The following quote by Christopher Morley says it all “There is only one success - to be able to spend your life in your own way.”

For those of you who are kicking butt right now, or even just starting out, if you work at this business for just 3-5 years you’ll be able to achieve that freedom. And, as I promised last week I’m going to give you the simple marketing plan that I use, to help you quickly get to the point of spending your time however you wish.

Here are the rules to my marketing plan. You must do EXACTLY what I say. You must implement the entire plan. No whining. Alright, now the goal of every real estate investor should be to use OPE (other people’s everything). This includes other people’s money and other people’s time. So, you need to hire a virtual assistant to run your marketing so that you don’t have to do a thing. A virtual assistant should cost you less than $200 a month. If $200 sounds like a lot, it won’t be once you start making between $5,000-$10,000 a month (For the rest of this post, I’m going to assume you believe in yourself and have already hired a virtual assistant).

1. Email your virtual assistant the criteria of the houses that you buy (3 bedroom, 2 bath, in whatever city). Daily, she will get on craigslist.com, go to the “for rent” section and email every rental property that meets those criteria. She will email them a well crafted letter stating that you specialize in working with landlords and are interested in doing a lease option with their home.
2. She will place an ad on craigslist.com looking for a person to put up bandit signs (if you don’t already have someone through your networking at your local REIA). Once you have found someone, your assistant will order 600 bandit signs and have them delivered to the person you hired (size 18 x 24, single sided, yellow sign with black lettering). That person will put stakes on them and put them up for you. Your assistant will email this person the location to put up the signs and will tell them to put up 50 signs every other Friday night, until they run out of signs.
3. Your assistant will call Melissa Data and order 2,000 absentee owner names for your given city. She will use the following criteria when ordering the names. Houses built after 1950. Houses at least 1,000 square feet and no more than 2,500 square feet. Houses that are at least 10 years old. Three bedroom properties only and absolutely no condos. After the excel spreadsheets are emailed to her, your assistant will load the lists onto click2mail.com. Then she will send out the mailings using your letters and postcards that she will also upload to click2mail.com. She will send out a mailing to the absentee owners every 2.5 months for a total of eight times (You must have well written letters and postcards that offer a FREE Special Report or some reason to respond).

I here a lot of investors complain that this business is tough and that putting things on auto-pilot is a myth. I just showed you how. The only time I talk to a seller is after my assistant has screened them and I know they’re motivated. She takes care of my marketing and everything else and this is how I’m able to spend so much of my time the way that I want. Fortune favors those who take action, so get moving and get marketing!

Tags: marketing, real estate, real estate marketing

We all understand the fundamental philosophy that  generally drives winning investing (or at least I hope we all do): “buy low,  sell high”. Well, real estate is getting  pretty “low” across the  board these days. The billion dollar question, of course, is: is THIS “low” THE “low”? We’ll have to leave that question for another blog  since I have no idea nor does anyone else. But,  given that real estate operates in an imperfect marketplace (therein lies the  opportunity), chances are that all current “low real estate” has some  kind of distress associated with it (either personal and/or debt driven  distress). This blog will focus on assessing the distressed debt  opportunity.

As due diligence consultants, we’re asked all the  time to assess deals with some sort of distressed debt association. There are  those, such as Matthew Landau who spoke recently at iGlobal Forum’s real estate private equity summit in New York, who believe that the government’s  plan to repurchase troubled real estate-related assets from financial institutions is likely “to make for price discovery in the market and  provide a minimum price, or floor, for the asset prices”. Landau noted that  Lehman Brothers, for example, “made a good call in not selling its real  estate-based assets at very steep discounts, considering that the government  could pay more for the assets”.

Ok, I’m following you. That makes sense. But what about the following?
From National Real Estate Investor Online

In fact, the troubled asset  relief program (TARP) could even contribute to an upward pressure on prices,  Landau believes. As for the possible risk of buying too early in the cycle and  missing out on good deals, he noted that it is always difficult to time the market perfectly and investors need to buy whenever they feel comfortable and  leave room in case things don’t go right.

Wow, that’s not very helpful is it. That’s like  saying: “hey, do your due diligence”. Yes, I know that, thank you very much.  But, HOW?!? What specific things do I need to know about, watch out for when  dealing with a distressed debt opportunity? I’ll get to that in a minute, but  here’s more on the current state of the  distressed debt opportunity …

Jeff Gronning, a managing  principal with Normandy Real Estate Partners, agrees that the government  program makes for price discovery and could provide some direction to a  cautious market in which everyone is waiting for a bottom. Even then, he says,  “The problem is so much greater than what TARP is designed to handle,” which  means that until there is some kind of catalyst, people will not buy.

Thomas Deane, head of structured transactions and special assets at Wachovia Securities, noted that considering the problem is based on billions  of dollars in assets, there won’t be a bottoming out until the first or second  quarter of 2010. “Too much stuff needs to go out the door,” according to  Deane. Deane has seen a lot of buyers pull back since they don’t want to buy  at the wrong price. “Nobody is going to call the bottom. Do sensitivity  analysis and have confidence in your abilities,” is his advice.

From the buyer’s perspective, Lawrence Ellman, North America head of  investments for Citi Property Investors, expects that prices will come down  and become more attractive. “So far, we haven’t seen prices to our liking,” he  said. “We need more deal flow and sense of urgency on the part of sellers.”  However, lenders that are working with developers on assets in transition are  beginning to see reality — such as a possible need for a haircut on the loan —  and the borrowers are following along.

Ok, that’s a bit more helpful, but that still doesn’t help me figure out  how I can take advantage of this historical opportunity.

All of these experts seem to be saying the same thing: there’s a huge  buying opportunity out there right now in distressed debt. We don’t really  know when it will bottom and we don’t really know how you can profit from this  opportunity, but it exists.

Well, I can tell you how to profit. What will determine whether you will  either make money or get swallowed up is one thing and one thing only: due  diligence! There are “deals of the century” out there in waiting right now,  but you have to know how to make sure they don’t blow up in your face. Here’s  a high level review of a starting due diligence checklist when evaluating a  distressed debt opportunity:

1 - Remember that you really have two major due diligence projects: (1) the  property and (2) the debt.

2 - Understand the lender’s business rules: the visible (organization  charts, documents, forms, processing guidelines, etc) and the invisible  (office politics, relationship between who originated the loan and who’s servicing it, history of bank and the players involved, etc).

3 - You have to work with whatever the lender gives you, which won’t be  everything you need. You’ll need to review the documents with one eye on the  documents they give you and one eye on what’s missing. So, you’ll need  your detective hat on and be able to read between the lines and fill in the  blanks.

4 - You will have to really understand all the security documents, so  don’t skimp on legal/advisory help.

5 - You’ll need to understand who has recourse. What other liens are  attached or, better yet, could get attached?

6 - You’ll need to do all your normal due diligence on the property  itself. Environmental, title, appraisal, management, lease analysis, financial  solvency of leasebackers, local political environment review, use analysis,  market supply/demand dynamics, trade areas, employment trends, absorption  rates, etc. Don’t forget about that while focusing on the distressed debt due diligence.

So, there you have it. There is a great distressed debt opportunity out  there right now and it’s only going to continue to get better and more  prevalent in the months and years to come. If you become an expert at  assessing those opportunities, you will thrive during these turbulent economic  times and be in a great position when the market comes back and make fortunes for  you, your family, your contractors, your investors, and your community.

After all, remember that - although I do not believe we are heading into a  depression - more fortunes are made during depressions than at any other  time in economic history. Make yours now!

Tags: Distressed Debt, real estate

A Tenant in Common 1031 Exchange, a (TIC), allows the owner of investment, business or income producing property to exchange it for a fractional ownership in another large commercial property or multiple industrial grade properties. When the IRS requirements for this type of exchange are followed, capital gains and depreciation recapture taxes may be deferred. A Tenant in Common investment offers the possibility for cash flow while freeing the owners of property management headaches.

13 Benefits of a 1031 Tenant in Common Investment:

1. Upgrade your present investment into institutional grade commercial real estate
2. Defer 100% of capital gains tax and depreciation taxes
3. Professional property management
4. Diversify an investment portfolio
5. Potentially increase cash flow from the investment
6. Cash flow from properties may be partially sheltered due to a new depreciation schedule.
7. Diversify real estate holdings over several geographic markets
8. Diversify real estate ownership in several different asset classes (hotels, office buildings, apartment buildings, industrial complexes, etc.)
9. Gain the potential for long-term high quality leases with tenants such as government entities, Fortune 500 companies
10. Ease of acquisition of the Replacement Property within the IRS required 45 Day period. The investor can take advantage of due diligence that has been completed on property offerings of TIC sponsors .
11. Investor may benefit from appreciation of the Replacement Property if it is sold.
12. A TIC is a valuable estate planning tool as it can be willed to heirs.
13. Heirs receive the potential for a stepped up basis upon the TIC owner’s demise.

Risks of the TIC Exchange

As with any investment in real estate, there are risks associated with TIC ownership, including fluctuations in the real estate market that may impact the value of the property. The following risks may also be associated with investment: illiquidity, economic risks due to vacancy rates, default if unable to pay mortgage and possible loss of principal. TIC ownership requires unanimous approval to take major action, such as a re-finance or sale. Obtaining unanimity may be difficult when 10 or 20 investors are involved. It is not possible to address all relevant risk factors in this forum. Risk factors are outlined in the Private Placement Memorandum for each offering. Investors should thoroughly understand all risk factors and discuss them with their financial representative prior to investing in a 1031/TIC offering.

The investor who is considering a 1031 Tenant in Common Exchange should evaluate possible Replacement Properties prior to closing on the sale of his present real estate holding. A 1031 TIC Exchange presents an opportunity to expand your investment portfolio, potentially improve cash flow, and should not be overlooked.

Securities offered through Pacific West Securities, Inc. Member FINRA/SIPC

Photo Credit: Chris Gin

Tags: 1031, 1031 exchange, investment real estate, real estate, real estate investing, Tenant in Common, TIC

Greetings from Flagstaff, AZ.  With a car full of kids and a plan for a perfect family vacation…. I will be making my way up to the Grand Canyon then off to Sedona, AZ for a week. By the way…the perfect plan flew out the window the first hour of the trip.

During my long drive to the great state of Arizona, I had a lot of time to think.  Specifically, time to think about all that is going on with the real estate market.  Of all that is happening in our economy,  the one thing I know is that the worse things get the more opportunities there will be.  But when will the opportunities show up?  Well….if you have had your ear to the ground ….compared to that last few years…the opportunities have arrived…or have they?  I am  a believer that things have not bottomed out and I think things are going to get much worse.  So…with that in mind, better opportunities are still coming….right?

But ….I am tempted

You see, I am having an emotional dilemma.  What if things have already bottomed out?  Will I miss out on the current opportunities if I do not move now?  If I make a move, what markets should I look at?  All of a sudden, I realize I am asking the same questions I asked myself last year and the year before….and the year before that.

Is there such a thing as “recession proof”?

Now add to my dilemma the theory of a “recession proof” market.  The one thing I am hearing over and over…is that there are real estate markets that are recession proof.  Is there such a thing?  From all my time in business school the one thing I remember is cycles travel.  In other words, all markets will get hit…it is just a matter of time (only the severity of the hit is unknown)….like a ripple effect.  For example, as we watch California’s real estate market fall into the sea….Oklahoma is still going strong.  So strong that the state brags about it.  But if cycles travel…is it just a matter of time?  In theory….yes.

A close friend of mine who is a “self-proclaimed” economist states that the Dallas/Ft. Worth area is recession proof.  I also heard that Oklahoma City is recession proof.  So…as nice opportunities come up in these areas….I am tempted.

What to do?

Develop an Investment Criteria

Late last year, I wrote down an investment philosophy for myself on how I was going to invest for the next few years.  The overall theme of my philosophy was to be a “vulture investor.”  In other words, the plan is to act on opportunities that are “cherry deals.”  The cherry deals had to have the following “aggressive” criteria:

1. Blue collar assets.  Investments that tailored to lower income populations.  Class C apartments, “Thrifty” retail,  mobile home parks, etc.
2. No land…unless I have money to park long term
3. Seller Financing or partial seller financing
4. Purchase at sixty percent of value or less
5. Positive demographics
6. Familiarity with the area
7. Solid property management in the area

Now…there is more to my criteria….and a lot of room for a “case by case” assessment…but every time I am confused or “tempted,” I reveiw my investment philosophy, make adjustments, then make a move.

Needless to say, I have yet to make a move to aquire an asset in the last several months…but not because of the lack of action but because the opportunies have not met my investment criteria.

So….to keep from making emotional mistakes….developing an investment criteria before acquiring an asset can keep you from being a lemming.

Until next time……rob

Photo Credit: DanieVDM

Tags: commercial investing, Commercial Real Estate, investment, real estate, real estate investing

When sufficient data is available, paired data analysis can be utilized as one of the most persuasive tools in a Comparative Market Analysis.  Paired data analysis can be broken down into two categories: Primary pairings (pairs of sales that are identical except for one component) and secondary pairings.

Primary pairings should be used first and carry the greatest weight.  An example of a primary pair would be the sale of the same property over time.  If a house was sold twice within a 5 year period, and both transactions represented an arm’s length transaction, than changes in price would reflect changes in localized market forces during that time.

LOOK BEYOND THE NUMBERS IN DETERMINING VALUE

Be sure to investigate whether prices reflect the behavior of a typical buyer and seller in that market area.  Check for conditions of sale, buyer/seller motivation, favorable financing, and property rights sold.  Besides the bundle of rights, people may purchase additional rights towards personal property, rights to sell, purchase, or manage other homes, or even other business ventures.

If there are multiple elements that warrant adjustment, then different primary pairings may be used to isolate these elements.  Judgment is needed in determining whether adjustments from multiple elements can be isolated and affect the purchase price in a linear fashion.  Care must be taken to ensure that adjustments are supported by market evidence.  Oftentimes, only qualitative adjustments can be made in the absence of market data.

DUE TO MARKET INEFFICIENCIES, QUALITY DATA IS SCARCE

Though theoretically sound, the main issue with this form of analysis is that the required data is rarely available.  An exception to this rule would be in analyzing market data in regards to changes in market forces.  This constant quality methodology is used by influential house pricing indexes published by the S & P (Case/Shiller) and the US Government (OFHEO HPI).  When there is limited data, one can still use this technique for certain adjustments and use secondary data to verify the likely hood that these adjustments are accurate.

Photo Credit: StuSeeger - CC 2.0

Tags: case shiller, OFHEO HPI, property valuation, real estate, value