Business Plan Done! How do I write an investment proposal?

Question

Can someone help me with writing an investment proposal?  I want to propose 3 options for investors.  At this time, this is all family members that I am approaching.

1. second lien holder on my primary residence in return for $80-$100k loan at about 7%.  I have $110k equity currently and am not a candidate for conventional heloc.

2. Unsecured personal loans in smaller amounts like $10,000, $25,000 or $50,000 for a interest rate of 7-9%

3. Loans secured by the property itself to cover purchase price, carrying costs and renovation costs.  $100,000 to $200,000 at about 10-12% interest.

Are there samples out there, or can anyone give me any insight on how this should be written/structured?

THANKS!

Kevin S. Campbell · Answer

There are sample business real estate proposal letters on Google, just type in all these terms and get the help you need.  Nolo also publishes books that show you how to structure your agreements, along with paralegals, document prep stores, and lawyers.  People need to stop quizzing the questions and just help people with what they asked for.

Bill Gulley · Answer

I kinda suspected that was the issue.

Looking like you know what you're doing is the first step, family can be tough as they really know you the best. Often, it's age related due to perceived experience, just a fact of life and the youngsters finding themselves wanting to be taken seriously (often prematurely).

Go to the local SBA office, there are non-profits that provide detailed assistance to new business owners. The are usually staffed by retired professionals, CPAs, attorneys, bankers, marketing types and others as volunteers and services are free and confidential!

There are different details that relate to different industries, if you pull anything off the internet make sure it's RE applicable, getting a proposal geared to manufacturing will look silly.

You are also near a college. Go to the Dean of Business or administrator in the business department and talk to them about your business and what you need,your goal here is to have your business adopted by a business class or group of students as a class project. They can come up with really good stuff and the project is under the guidance  of a business teacher/prof. Some are free  and some schools want a fee or costs covered if they are significant.

Your first step to recognition for a younger person is admitting you don't know it all, but knowing where to find answers. Show that you can consolidate the needed information and lay out a good plan. :)

Ellis San Jose · Answer

Ever try docstoc.com or just google search:real estate investment proposal pdf?

Could be a good resource as a starting point.

Amy Solomon · Answer

I guess I want a proposal so they can see I am serious.  Also because one of the family members is extended family, and an attorney himself, a really really good one.  I want to be taken seriously.  I am the baby of the entire family and I'm trying to squeeze out of that mindset.

Plus, my thought was I could get it written, and it might be a good foundation for me to have when I have a few more flips under my belt and I am looking for money outside the family.

Do you know of any sample templates or proposals on how it should be laid out?

Bill Gulley · Answer

Good point.

Usually investing partners who are not in the business are reluctant and confused to begin with, giving options just complicates the decision process. It makes perfect sense to you, it may not to them.

Select the best alternative that fits the project not so much what you might guess what fits an investor's needs, personality, risk tolerance, as you can't read their mind. Don't turn yourself into a private investment advisor, especially for family.

It's simple, it's a business opportunity and here is the deal, if that doesn't work then ask what they think would be better for them and if that works, you're done.

Frankly, when extended family approaches me like this, the more they try to show me they know what they are doing the more holes I see. I can make the decision and the deal is that I have a finger on the money, that if things go south that they follow instructions.

And, while this may not apply to you Amy, but applicable, when you have family involved you need to take greater care. If that money guy doesn't really have good investment skills get a third party of influence, like a CPA, family attorney or broker involved. You talk to them together, if Aunt Edna wants to help she should say so and from that point the advisor's job isn't to shoot down the deal but to assist in making his client's goal a reality, even if it is risky, if that's what they want then they need to help make it work. This takes the burden off you, you shift the responsibility to that third party in some ways and that can save the relationship.:)

Ellis San Jose · Answer

@Amy Solomon

I offered 7% on a first TD secured  on investment property

2nd TD secured on investment property 10% (usually for rehab short term)

or 50/50 split on cash flow and equity ( they have title to the property if they want)

They may agree to different terms but I tried to keep it simple and gave reasons why to choose A, B, or C

Bill Gulley · Answer

Sorry for any mix up Amy, but I'm still not sure why you need a proposal in a formal sense if it's your uncle......however, an uncle is not immediate family under SEC or other regulatory exemptions, but....

Are you asking about an investment prospectus for investors or a loan proposal...

You may need to look at pro forma statements, they financial statements that are based on projections into the future to estimate business performance.:)

Amy Solomon · Answer

I think there is some misunderstanding.  My business plan is complete.  These proposed investments are not for strangers or investors.   It's for my close family, parents, inlaws, uncle (i'm his heir) etc.  In many cases this is merely an "advance on inheritance".  I think these loan terms are very fair, and I think that each family member can choose which loan option they like as well as negotiate any terms.

I'm not totally NEW to the game here. I've got several successful deals already under my belt.  I also didn't mention anything about not having any skin in the game.  And surely, if I take out a HELOC or similar loan, that IS SKIN IN THE GAME.  Not to mention my own cash which I didn't talk about because that has nothing to do with the question.

7% on a heloc or 2nd?  If my first is 3.5%, 7% seems just about right for a home with steadily increasing values and over $110k in equity. I can check rates...but that seems pretty good to me for a secured loan.  I'm willing to go up of course, but 7%-9% that wasn't the topic of this thread.

I was asking if anyone has experience writing an investment proposal, how are they written, where can I find a sample etc.

Bill Gulley · Answer

Oh my! You reminded me of an ex-wife, just a darling, thought nothing of asking for the unreasonable as she didn't have a clue how the real world worked, not sure she ever really caught on, she still asks for more money....LOL

BTW, there was nothing blonde about my comment, nothing personal/

Jeff pointed out where you need to start, 3 sounds like you want someone to finance the whole thing for you, search here on BP for "skin in the game", look at HML threads, you'll see what is expected, what flies and what might just be way out of line.

As to a business plan, search here again. Also, contact the SBA in your area, there are organizations that assist small business owners, many who volunteer are old bankers, lol, like me. That's the best place to get good, free help!

Good luck! :)

Clay Manship · Answer

Hey @Amy Solomon -

Not sure what your situation is like, but when I approach investors, I offer proposals for full recourse on the property, for a $30-40 K loan. $100K is a damn large loan, and I'm not sure my family loves me enough to risk that kind of money at 10%!

I have 5 year deals, interest only for the first year at 10%. Then refinance the note with a large commercial bank after one year of seasoning, at around 75-80% loan to value ($50,000 house would be refinanced at $40,000.)

Works well for me--get quick cash for fast deals and if you buy a property for $25K, spend $10K making it worth $50K, you can then refinance at $40K, reap a profit, and take equity out for your next deal, too. Win-win.