Lack of Funds is Just an Excuse

    He had been solving foundation issues or constructing new foundations for his clients (mostly businesses) for decades. He liked what he did and he was good at it. He realized that houses with foundation issues were plentiful where he lived. They were cheap, very cheap, and he knew he could easily fix them, so he bought his first investment house and starting rehabbing it. He did most of the work himself. It was taking a long time. He still had to service his commercial clients and the house project was not his priority. He spent his reserves, missed a tax payment. He realized waiting was costly but he didn’t have the funds to complete the project. He didn’t need very much, maybe $10K. He owned the home clear and had already done a lot of the work.

     She was a successful professional. She made a lot of money but didn’t have a lot saved. She had no desire to leave her job but knew it was not something she would do for the rest of her life—it was very demanding. She gravitated toward real estate and wanted to get into the game. She wanted to start with some rentals. She knew there would be economies of scale if she purchased several homes in a small area in quick succession. She had spoken to bankers and knew with her income and a successful track record she would be able to get bank financing, probably a line of credit on the portfolio, in approximately six months. She had the cash for the first one but knew she didn’t have enough to buy the portfolio she wanted right away. She didn’t see any reason to wait.

     He was a very successful real estate investor, very well known in the investing community. He had been working hard for twenty years. Deals almost seemed to fall into his lap. He didn’t really need to borrow but he also didn’t want to put what he had built and saved at risk. Then again, why walk away from the profits that he knew were there? He could simply borrow through his companies.

     She was a Realtor and knew her market very well. She had taken some problem listings, houses with fire damage, mold, etc., rehabbed them and turned a nice profit. Other Realtors saw what she did and sent her the deals they didn’t know how to market. In order to secure these deals she had to move fast. She could get bank financing but if she waited for the banks to fund, the deals would be gone.

     They had done several deals. Their timing was great, working in a depressed market where they could buy houses to rehab very inexpensively. They had done well, well enough that they were thinking about quitting their day jobs. They saw the market was changing. Prices were rising. It was getting harder to find deals with great margins. That was alright, they had also become better at the rehabs, faster, more efficient. They were willing to take on more projects with smaller margins to keep their crews working and keep growing their business. More projects required more capital and their funds were already invested.

     They had known each other forever. One was a builder, the other had built a real estate business and a portfolio of rental houses. They wanted to build houses. They knew they would be able to secure bank financing after they had built a few homes but how could they get the funds for the first couple?

     The deals involved foreign buyers who were selling to other foreign entities. They seemed complicated. Maybe they were but he had done many similar deals and knew he could protect his investors. He was a party to the deals and the title company insisted the funding come from another source. He needed someone with funds available who would understand the protections in place and would be willing to provide funds for a very short period of time, days.

     He had years of experience managing a rental portfolio but his finances took a hit in the downturn and he lost it. He had saved up some funds and wanted to start rebuilding. He knew how to evaluate markets, buy well, and in areas where there was strong rental demand. He needed some time before he could approach the banks again and, besides, the banks didn’t usually lend on properties worth around $30K anyway.

     All of these investors had strong deals but for one reason or another they wanted or needed funding outside of traditional banking. All of them found it from private investors. If the deal is strong the money will be available. Lack of funds is just an excuse. Don’t use it.

                                           Please subscribe to this blog with the button below.