Beginners Luck or Creating Success

Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes

What would you tell a beginner who has stumbled upon a commercial deal which is the sell of 23 homes with a value of $6M Contract is already in place with 80% ( $4,560,000.00 ) financing and 30k Earnest Money but the beginner cant come up with the 30k Earnest Money or the 20% ( $1,140,000.00 ) If only the beginner knew someone who could come in and fund the 30k Earnest Money and the 20% ($1,140,000.00 ) they will receive 38% ($2,280,000.00 ) Ownership or stake in the company that will hold and manage the properties..............................

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Derek Carroll

Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes

First off people are trying to help you understand reality so the attitude doesn’t help you get partners that’s for sure. Second doubling your money is 100% return not 50% Third, just because you’re giving someone equity does does not mean that this can be realized with any certainty and without cash flow there is not “return” Think about the other side for a minute. What are you really offering them? You’re bringing them a deal where they are putting up the entire risk capital. You should get paid for the services you’re providing which include, broker/finders fee for a maybe a couple percent on a deal this size, finance broker fee (assuming they want to use your lender and don’t have an existing relationship) for one percent, and property management at maybe 3-5 percent of rents. Keep in mind these are one time fees and not percentage of equity given to you. Everything in real estate is negotiable but if you continue to ask for terms as you describe above then I have a seriously hard time believing that anybody would even consider doing business at those terms. Most people with $1m cash know what types of terms/fees to expect and would run if offered a deal like this. Keep in mind that the money dictates the terms and it’s up to you to clearly explain the value add you’re bringing to the table and a justification for your fees and equity. It’s better for you to have a small piece of a big deal than a large piece of no deal.

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
More like a pipe dream. No one is going to give you 38% for finding a deal when they’re putting up all the money. And is it a “deal”? At around $300k/ house, I doubt it.
1 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
You want someone to pay the entire 20 percent down payment and get only 38 percent of the deal? That is crazy, someone takes all the risk and you get 62 percent for just finding the deal. That is worth maybe 3-10 percent maximum for your cut.
5 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@joe splitrock Wow I thought that was fair seeing how you're doubling your money. If you think you deserve more than 50% you're wrong. What do you think is fair 50%? you never would have had the deal without me.
3 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@wayne Brooks
I guess you did not read the whole post they only have to come up with 20% on a deal that's valued at six million dollars and the price is already negotiated at 5.7 million purchase price so there's already two hundred thousand equity in the project. It's not a pipe dream is a project that makes sense you're only having to put up 1.1 million in a project that's valued at 6 million and you're getting double your money back it's a no-brainer you must not know Lending
1 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Wayne Brooks
Where else do you get a 50% return in the market right now
0 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Joe Splitrock
@Joe Splitrock
@Joe Splitrock
Wow I thought that was fair seeing how you're doubling your money. So you think I should walk away with 10% and you walk away with 90% just because you put up $1.1M in a project valued at $6M but I am the one who found the deal and secured 80% financing for the project hahaha you're a joke and your greedy and you're just taking advantage of someone. You must not do a lot of business with those business practices.
0 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Wayne Brooks
I guess you did not read the whole post or you don't know how to do simple math they only have to come up with 20% on a deal that's valued at six million dollars. So they are not coming up with all the money, I have already secured the 80% financing and negotiated the price at $5.7 million purchase price so there's already two hundred thousand equity in the project. It's not a pipe dream its a project that makes sense you're only having to put up 1.1 million in a project that's valued at 6 million and you're getting double your money back it's a no-brainer. Also yes the homes are valued at $6M Homes Range from 230k to 310k. You must not know much about lending or its just head knowledge never applied in real world.
0 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
The mentions aren't working right now.
Brandon, you must be using a math I never heard of. I thought it was ridiculous with You getting 38%,
with You getting 68% it's even more ridiculous.
Do I understand this right?
Investor puts up $1,140,000
Financing for $4,560,000
Assuming an Actual $6M value, ignoring any later sales cost:
Total Equity: $1,440,000
Your ownership 62%
Investor ownership 38%
So, Best case scenario:
The investor puts up $ 1,140,000 and Gets $433,200 of Equity (38% of $1,440,000)
Now, how is that a good deal?
2 Reply
Derek Carroll
Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
8y
First off people are trying to help you understand reality so the attitude doesn’t help you get partners that’s for sure. Second doubling your money is 100% return not 50% Third, just because you’re giving someone equity does does not mean that this can be realized with any certainty and without cash flow there is not “return” Think about the other side for a minute. What are you really offering them? You’re bringing them a deal where they are putting up the entire risk capital. You should get paid for the services you’re providing which include, broker/finders fee for a maybe a couple percent on a deal this size, finance broker fee (assuming they want to use your lender and don’t have an existing relationship) for one percent, and property management at maybe 3-5 percent of rents. Keep in mind these are one time fees and not percentage of equity given to you. Everything in real estate is negotiable but if you continue to ask for terms as you describe above then I have a seriously hard time believing that anybody would even consider doing business at those terms. Most people with $1m cash know what types of terms/fees to expect and would run if offered a deal like this. Keep in mind that the money dictates the terms and it’s up to you to clearly explain the value add you’re bringing to the table and a justification for your fees and equity. It’s better for you to have a small piece of a big deal than a large piece of no deal.
16 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
The first question would be - is it really or a deal or just a piece of real estate for sale.
1 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Wayne Brooks
No No you had it right the first time 38% to the investor and 62% to me not 38% and 68% which equals 106%. This whole purchase is being placed under an LLC. So when I was mentioning 50% above I was speaking about giving up 50% of the company, I know doubling your money means 100% @Derek Carroll So you would own 38% of the company that would manage these 23 homes. But I guess thats not fair, I guess I am suppose to give up the deal only collecting a finders fee and having no real long term relationship with this project and never really growing or learning the other side because people with the money don't want to many at the top. when I have already set in place 80% financing at 5.5% 30yr Amortized. I know everything in real estate is negotiable and I know a little about creative financing. I thought I could give up 38% equity in the company that would hold the investment and manage the properties would be sufficient but even if I went up to 40% that would mean they would own 40% equity with a company valued at $6M. If you would like you can take a look at what I have @Ian Walsh Every home is rented with long-term tenants. The property brings in $408K per year @Derek Carroll so their is realized cash flow.... with expenses being $15.5K per year which is only for the property tax and insurance the tenants cover Trash,Water.Electricity, etc..... and they are suppose to maintain the properties.. Debt service is $27,253.87 per month.
But I do apologize for being harsh earlier I did not mean to misrepresent myself or what I am trying to accomplish on here, But @Derek Carroll they were not offering help they were being rude and mocking my first project with snide remarks.. hardly helpful if you ask me. Anyways, I still should not have acted in the same way or came down to there level so I apologize. Have a great day
1 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
This is getting good. Maybe OP will manage financials for this project.
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6 Reply
Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Brandon W. What is your exit or profit strategy with this deal? Say you were to get such an investor, how you you and the investor realize a profit? Would it be in monthly cash flow? Would it be in flipping the properties? What is your plan? Have you already ran the numbers? If so, share them with us.
480-206-1209 Podcast Guest on Show #287
2 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
@Brandon W. you called me a joke and greedy, but let's recap what you said:
You found a deal and want to put $0 into it. You want someone else to come up with the $30K earnest money and 20% down payment of $1,140,000. The investor is providing 100% of the capital, which is 20% equity. In exchange they get 38% of the ownership. In other words someone else takes on all the risk and get's 38%, you take on NO risk and get 62%.
If the deal goes bad and everything needs to be sold, guess who is financially on the hook? Is it the wealthy investor or the broke beginner? Broke beginner has nothing, so the bank goes after the investor.
Your claim that you secured an 80% loan is not correct. You don't have a loan because you don't have money for the down payment. Anyone with that kind of cash could easily get the same loan without you.
Here is what greedy looks like. A broke newbie finds a deal and expects someone else to take all the risk and in return they get $3,720,000.
Call me whatever names you want. I am just giving you a reality check. Anyone smart enough to acquire over a million in cash will not do the deal under your bad terms.
15 Reply
Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Brandon W. I just noticed that you shared some of the numbers when I was writing my post. Could you do a monthly break down of the numbers so we can see what the monthly cash flow looks like.
For example
Monthly income
Monthly expenses
Cap ex
Vacancy
Monthly cash flow
ROI for the investor who invests the $1,140,000 plus the $30,000.
480-206-1209 Podcast Guest on Show #287
0 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Shiloh Lundahl
Personally I would like to hold and learn how to maximize profits on these 23 homes. But if an equity investor came along and said he will do it but wants to start selling off in two or three years and roll it into something else or split profits or whatever. I am very flexible but I am not stupid and I don't see it fair to get 1% or 2% finder fee on a $6M project where yes someone put up 20% plus earnest money but I am willing to even give them 40% maybe 45% of the which if the appraisal is correct means the investor turned $1,170,000,.00 into $2,700,000.00 and owns and manages 23 homes. Why isn't that good enough why do I have to get cut out and not learn and grow.
0 Reply
Jon HuberPro Member
Rental Property Investor · Boca Raton, FL · Member since 2014 · 1k+ posts · 713 votes
8y
@Brandon W. The other question is do you have the track record of providing investors with a return that would ensure the investor is actually going to get his 38%?
Also, saying things like "I guess I am suppose to give up the deal only collecting a finders fee..." or "people with the money don't want to many at the top"... would make me hesitant to do a deal at all. If you don't have the experience and have never done a deal before, why would someone write a check for over $1m? They've worked hard for the money.
Lastly, you mentioned "already set in place 80% financing at 5.5% 30yr". Did you qualify for over $4.5m in financing? Did you just make a call to a bank, or did they run your credit and look at your financials? Did you put your name on the loan? I'm assuming that the person writing the check for $1m is also going to have to be on the hook for the other $4.5m.
I am not trying to discourage you. I am trying to show you that there are a lot of moving parts, and the investor takes all of the risk each step of the way. If I were you, I'd be happy with a finder's fee, less than 5% equity, and the experience of the deal. To be honest, if someone offered you that, I would take it as fast as you could. I don't know any investors willing to sign a $1m check, and putting their name on a $4.5m note, AND only taking 38% of the deal and leaving the rest on the table.
6 Reply
Alpesh Parmar
Investor · Dublin, CA · Member since 2016 · 344 posts · 228 votes
8y
Brandon Whitaker I don’t think other people on the forum were rude or taking you down. They were not saying hat they have money and still don’t want to do the deal with you. They are asking questions which any sane investor would ask. I also don’t think this is a good deal unless I am missing anything. Does this meet simple 50% rule or even 1% rent to price ratio? I apologize if this offends you.
0 Reply
Jon HuberPro Member
Rental Property Investor · Boca Raton, FL · Member since 2014 · 1k+ posts · 713 votes
8y
@Brandon W. Lastly, if you know about the deal of this magnitude, someone else does to. And that someone else is probably going to have better terms. The deal may be special, but that doesn't mean the person bringing the deal is. I have multiple wholesalers bring me the same property with different prices all the time.
It's a competitive, cut throat world out there.
Good luck...
1 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Wayne Brooks
I did call you those things because you said I should only receive 3-10% fee but not be apart of the project. So that is you being greedy. Why do I have to get bumped out. I am willing to give up to 45%which mean if the appraisal is correct the investor turned $1,170,000,.00 into $2,700,000.00 and owns and manages 23 homes. Why isn't that good enough why do I have to get cut out and not learn and grow. They are not taking all the risk I am owner of the LLC and signer on the contract I am liable for the $4.8M and if it goes bad you sell the homes and realize $2.7M. I will be stuck holding the bag owing the $4.8M and if we did have to sell cause things went bad I would only realize $3.3M so in the end I would be stuck holding the bag no one else. Your wrong I have secured financing for the project.... any financing comes with terms one of the terms is they will only finance 80% I have to come up with the rest. I have a contract on the project so no youre again no one can get it plus if they could get it then they would probably have it under contract before I did but no one knows about this deal not even you...... but I am the one with the contract.. I am sure you have never closed a million dollar deal and if you did you collected some small fee and moved on and you expect me to do the same but I will not do that. This is a good deal.Nothing you touch right now has the potential to double your money and yes this has risk.... SO DOES ANY LUCRATIVE INVESTMENT.................

0 Reply
Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Brandon W. I think learning is wonderful and there are several ways of doing it that may lesson the risk for an experienced investor and may help you attract more money. But we are still talking in generalities. Let's talk specifics, which is what an experienced investor is going to want to see. What are the numbers on this deal? What is the ROI going to be for the investor who comes in with $1,170,000?
480-206-1209 Podcast Guest on Show #287
0 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Jon Huber
I have it under contract. Yes financing is already in place read above. Offers have been made but I came closet to their asking price so no I'm not special. Also I apologized for my above comments. I did not mean to misrepresent myself or what I am trying to accomplish. They maybe snide remarks and were rude @Alpesh Parmar but I already apologized for returning in kind the same rudeness.
0 Reply
Jon HuberPro Member
Rental Property Investor · Boca Raton, FL · Member since 2014 · 1k+ posts · 713 votes
8y
@Brandon W. A developer of a $6m project signed a contract with you to buy it... with no experience, proof of funds, partnership, earnest money, attorney... just came in, said you wanted it, and he signed it away?
You may want to check the terms. How long do you have to come up with the money?
6 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
8y
@Brandon W.
Imagine you are the person with a couple million cash and someone comes to you with this deal. Would you take it? Really? Or would you be looking for a similar type deal on your own that you could own 100% of?
1 Reply
Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Eric James
Very true I guess I had thought someone would want it. You Think I could take a 20% equity position and give up 80% of the company to the investor? Or is this a deal that I will not be able to be apart of?
0 Reply

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