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It Takes a Track Record to Raise Capital for Buying Real Estate

Marty Boardman
3 min read
It Takes a Track Record to Raise Capital for Buying Real Estate

The home was empty.  You know that look right?  There was a pile of old phone books on the porch.  A flyer for a housekeeper, landscaper and pool cleaner were dangling on the front door knob.  I peeked over the side gate and could see the pool had been drained.  The plaster was peeling off the sides.

Sure, you can drive through just about any neighborhood in the country today and find vacant houses.  But this was 2005.  The underlying mortgage on the home was only $77,000 – the market value $200,000.  Why was this house abandoned?  Why hadn’t the owner sold it?  She could have easily flipped it to an investor like me for $100,000.

With the few clicks of a mouse and a quick phone call I had my answer.  The owner, who was now living in Hebron, Indiana, could not sell the house and make a profit.  The Arizona Attorney General’s office had made sure of that.  They recorded a $125,000 lien against her back in 1993.

I made another quick phone call to the AG’s office and found out they’d be willing to release the lien for $25,000.  Problem solved.  With the lien released I could buy the house and give the owner a little cash too.

Unfortunately, time was not on my side.  The home was scheduled for auction the next day.  My only option was to fly out there and get the notarized deed and closing documents directly from the owner.  The closest airport was Chicago O’Hare.  I rented a car and met her in Hebron at a Holiday Inn Express just off the interstate.

I arrived back in Phoenix the following morning (the auction was at 2p) – reinstated the loan and recorded the deed.  Boy was that close.

money from the skyI have lots of stories like this from my days as a bird dog.  I was just starting out in real estate back then working for a local investor.  He would travel to any zip code to put a deal together if it made him money.  What I’d discover later is that I could parlay these stories into a business of my own.  I was slowly developing a track record.

Around this same time my father-in-law, a retired IBM manager and successful real estate investor, came out for a visit.  He was curious why I wasn’t doing this real estate investing thing on my own.  I explained that I lacked the financial resources.  After analyzing the numbers on a few of my previous deals he decided to loan us some “love” money.

Of course, the numbers I provided made sense to my father-in-law.  But let’s face it – he was really investing out of love (presumably for my wife, not me).

I’ve found that’s how most entrepreneurs get their start.  A family member or friend will believe in you enough to front some cash.  If you make them money they’ll invest more.  And better yet, they’ll tell other friends and family about your business.  Sooner or later they’ll want a piece of the action too.

However, none of this happens without a track record.  Back then I used a simple Excel spreadsheet to track the numbers.  These days it’s Quickbooks with P&L statements and a balance sheet.  If a potential investor considers coming on board I send them to a password protected area of our website that has an up to date financial pro forma. 

money talksA fancy business plan and highly produced website aren’t enough – you need a track record to raise private capital for buying real estate.

As for that vacant house I bought back in 2005 – I called one of our wholesale buyers to tell him about it just before I boarded in Chicago.  When I landed I had a voicemail from him.  He agreed to pay our asking price of $125,000. 

I shared my last 24 hours with the man sitting next to me on the plane ride back to Phoenix that day.   He asked if I was a real estate investor.  No, I said.  But I did stay at a Holiday Inn Express last night.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.