1.2 Million

5 Replies

There seems to be too much money left on the table that even for someone extremely allergic to risk, it seems to make some sense also rehabbing and selling the property to a retail buyer. 

I am looking at securing $1.2 Million for a fiscal year which should fund both the acquisition, rehab and resale of approximately 10 SFR units during a fiscal year within a specified market.

The numbers currently seem to add up to about 59% for acquisition, rehabbing, some administrative and resale/marketing cost. Profit is somewhere in the 41% range.

The difference being that instead of running around with each deal to secure wholesale funding, have nightmares about a rehabbers' financing source bailing out last minute, a seller that is increasingly curious about the legality of the whole transaction, coupled with a somewhat high or higher cost of funds, you can simply spend more time filtering through to find very good deals and have more control over the funding process.

I would like to hear from some other users on the site, whether corporate finance gurus, investors or financial professionals, who may have had to secure funding for similar entities in a similar industry. What sort of margins, financing options and strategies were in play?

Account Closed

If I understand your question, you are looking to grab a pile of funds first and then find the properties to rehab, and you see this as a safer easier way to do this?

Again if I understand your question correctly then you have a problem. Legally, you need to either atteach a loan to a specific property or you will potentially end up in jail.  I know a guy from OH that got 10 years. 

On the other hand, if you market this as a security, then you are ok, but to do so you need the advice of a securites attorney and not a mere mortal real estate investor.

The second problem you are about to run into is that while your numbers work on paper and your math is correct, you need to have a property to back up your theory-math.  For example, I have a house that I bourgh at 120k, the rehab is 100k and my arv is 330k.  An invetor can look at my property, my rehab estimate, and my arv, and make determinations about my estimates. Each peice of my puzzel can be investigated and verified. You seem to be looking for investors, when you have nothing concrete to offer them for due dilligence. 

My advice, dont try to reinvent the wheel.  Find a house first, create a repair estimate, and seek funding based on real world math. give investors something verifiable, and money will find you deals. I raise a lot of money for my deals by sticking to this simple concept

I hope that helps

Josh

Medium t shirt logoJosh Caldwell, Pittsburgh REIA | [email protected] | http://pittsburghreia.com

@Account Closed and @Josh Caldwell .  I agree with Josh, that it makes sense at a high level.  That said, the company that I worked for started with the fund approach rather than the individual deal syndication model.  There was enormous pressure to keep that money moving.  A couple of deals not closing and/or being dragged out can really hurt the investor yields.  

Best of luck,

Josh

Originally posted by @Josh Caldwell :

@Kenneth G.

If I understand your question, you are looking to grab a pile of funds first and then find the properties to rehab, and you see this as a safer easier way to do this?

Again if I understand your question correctly then you have a problem. Legally, you need to either atteach a loan to a specific property or you will potentially end up in jail.  I know a guy from OH that got 10 years. 

On the other hand, if you market this as a security, then you are ok, but to do so you need the advice of a securites attorney and not a mere mortal real estate investor.

The second problem you are about to run into is that while your numbers work on paper and your math is correct, you need to have a property to back up your theory-math.  For example, I have a house that I bourgh at 120k, the rehab is 100k and my arv is 330k.  An invetor can look at my property, my rehab estimate, and my arv, and make determinations about my estimates. Each peice of my puzzel can be investigated and verified. You seem to be looking for investors, when you have nothing concrete to offer them for due dilligence. 

My advice, dont try to reinvent the wheel.  Find a house first, create a repair estimate, and seek funding based on real world math. give investors something verifiable, and money will find you deals. I raise a lot of money for my deals by sticking to this simple concept

I hope that helps

Josh

Wrong. 

Perhaps you should post the specifics of the case that you are referencing so that readers can know exactly what the person you mentioned did. 

You mentioned securities for instance, that is one many ways to go. Many companies issue securities to fund their operations and engage in any legitimate business practice. To say that any business thinking of issuing securities will go to jail because some Joe who you knew, committed securities fraud and went to jail is simply incorrect. Need specifics of what you, are referring to.

As a business entity you can raise funds for any legitimate business purpose. If going the bond route, the SEC might tell you what requires registration or not or if what you are doing is regarded as a security or not. Each state might also have subtle variances but for the most part not drastically different from federal securities regulation. Some securities and exempt both at the state and federal level depending on things like amount, who is involved (whether a qualified or unqualified investor) etc.

I also wouldn't call it reinventing the wheel, just lowering your average cost of funds drastically, having more control of the process and making more money.

Originally posted by @Josh E. :

@Kenneth G. and @Josh Caldwell .  I agree with Josh, that it makes sense at a high level.  That said, the company that I worked for started with the fund approach rather than the individual deal syndication model.  There was enormous pressure to keep that money moving.  A couple of deals not closing and/or being dragged out can really hurt the investor yields.  

Best of luck,

Josh

Good to hear from you. I would like to know of the company's business model which you mentioned. Such as if it was it an REIT structure etc.? 

If it was an REIT, the issue with that model is often that you have to dispose about 90% of income in form of dividends to shareholders which effectively might be a costlier source of funds in that you aren't retaining what you make.

The route I am trying to explore would require you compensating the investor or investors, whatever rate of interest that you negotiate depending on just how things are structured. 

Regarding pressure, again that might have to do with just how they were set up. I think turning over 10 properties in a year is not a tremendously difficult task. And the intent is not to splash $1million in the first month of the fiscal year on acquisitions but rather to distribute the acquisition, rehab and resale of the 10 properties incrementally through out the year.

The number of deals per year might start increasing eventually but will require strong management to ensure it does get chaotic. But that I think is a management problem.

 Some securities are exempt both at the state and federal level depending on things like amount, who is involved (whether a qualified or unqualified investor) etc.

I think the most common term here is whether the investor/investors involved are sophisticated/accredited.

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