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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Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Brandon W. often times when we are new and we find deals we get excited and we take it personal when others don’t either share our excitement or critically analyze our deal. This is what a mentor is for. They warn you from making a lot of expensive mistakes. I lost 5k on one of my first deals in 2015 because I misjudged the numbers that a mentor could have helped me see. I also lost about 70k between 2 deals in 2016 that I could have and should have avoided if I had consulted with a coach or mentor. I now run the numbers much better and consult with other investors more experienced when I buy my properties. And if the numbers don’t work for me, I don’t buy the property anymore. I’ve learned that lesson a few times and I don’t think I need to keep relearning that lesson any more.
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Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
I would encourage you to consider the feedback you received here a merciful blessing in disguise and back out of this deal while you still can without losing anything.
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Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Shiloh Lundahl
Thank you for sharing your experience with me and yes you are correct I am very excited and did get over emotional and I apologized to those individuals. I did not come on here to make enemies but simply to close my first project and when big numbers are involved one can lose some commonsense. Oh well... Thank you again.
0 Reply
Matt B.
Investor · Bethlehem, PA · Member since 2016 · 229 posts · 122 votes
8y
@Brandon W. @Jon Huber "I have it under contract. Yes financing is already in place read above." now that changed to "No Jon I said I have a contract. I didn't say it was signed." lol do you understand what "having it under contract" means or are you throwing around terms you read in a book once?
you wont have it under contract (signed, since someone here doesnt know what that means) when you cant come up with the down payment. Financing is not in place, financing will only be in place when you come up with the 20% down and you pass underwriting (which you have not yet done since you don't have the down payment).
I'll be rude since you have a real attitude problem....its people like you that hinder the growth of others. you cant come to a forum on real estate, basically post up that you need a partner to fund the down payment of over $1mm and expect people to flock to you just because you found a deal. so what, people find deals every day. and i got news for you, your $6mm project is nothing more than a single family home where i live. welcome to NYC.
Since your "go to" seems to be berating people for not doing million dollar deals, ill let you know that I have not done one...and neither have you. but judging from your profile and your attitude, I've done more deals than you, as have the people you think you know more than.
For all intents and purposes, the only role you play here is being a wholesaler. nothing wrong with that but dont be a wholesaler and expect to get the percentage of a equity partner with skin in the game. And might i add, that i dont have millions in the bank but the people i know that do, would never do a deal with someone like you because of your attitude. its always the broke ones who bring nothing to the table that are the first to criticize others when their opinion differs. everyone on here tried to give you good advice, to be honest, you dont deserve the advice they gave. they should let you pitch to a few investors and watch you get laughed out of their offices with your tail between your legs because only then will you learn something of respect to others.
@Russell Brazil any chance you can kick this guy out of the forum? he clearly doesnt know how to respect others.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
Brandon, geeze, where to begin. If you think your only expenses are taxed and insurance, you are delusional......100% occupancy forever? No repairs between tenants? No capex, etc. If your investor gets 38%, the only Value he is getting is 38% of the Equity, not of the $6M, because there is a frigging $4.4M loan! I’ll be kind and show you how to figure out your major thinking flaw in thinking the investor has something worth $2.7M. If I simply give you a $1M property that has a $1M mtg on it......what is the $ Value I just gave you? Hint: Not only does the $ Value end with a zero, it begins with a zero.
6 Reply
Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
And BTW, A contract is s contract only if it is executed by both parties, otherwise it is an offer. No, you didn’t “secure financing” because you don’t qualify for it.....some lender just told you what the terms would be If you qualified, and it is likely truly 25% down if someone qualifies. You’re obviously trying to fight above your weight class here.
3 Reply
Matt B.
Investor · Bethlehem, PA · Member since 2016 · 229 posts · 122 votes
8y
@Wayne Brooks Well said!
0 Reply
Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
8y
Whew, if ever a topic needed just plain closing out it's this one. If anything it's a lesson on how not to introduce yourself to the forums and how not to analyze a deal :-) Just a cautionary tale for those trying to vet out deals on here.
As an aside, @Brandon W. you've done your mea culpa, things happen, time to move on. But a couple of huge lessons are:
1.) A seller provided value estimate it not an appraisal. I can tell you my portfolio is worth $6MM. If you offer me $5.4MM it doesn't mean you're getting a good deal. It might, but no investor is going to put up $1MM to "figure it out". Nor will they put up $30K plus whatever appraisal costs there are which (on this many properties) aren't zero. And the value of a non-executed verbal agreement is something close to...zero.
2.) I have a modest pile o' money but I'm not sitting on $1MM liquid. Very few people are. The people who are sitting on $1MM make their own rules for deals like this. And, what you also have to realize, is that anyone who is sitting on $1MM liquid has people bringing them all sorts of deal-flow akin to yours. So you may think your baby (deal) is the cutest but to every else...it's just another droolin' kid.
3.) Pro-formas are you bestest friend. As @Shiloh Lundahl points out it's great to have others look over them. You'll make mistakes, forget category, underestimate costs, etc. Very seldom to I see horribly pessimistic pro-formas on BP forums. They usually are a little rosie and the poster needs a reality check. I don't know about others but I have a couple of people I trust to send my numbers to see what I'm missing.
7 Reply
Jason D.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
8y
@Brandon Whitaker what you are essentially asking is for me to give you $725k in equity and 62% of all future profit for finding this deal. Does that sound like something that you would do if the roles were reversed? A finders fee is much more acceptable to an investor in this scenario. Unless you bring some major value to this deal, you'll never get an investor to fund this.
0 Reply
Albert Ng
Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
8y
Let’s hope you are not trying to find a sucker at BP. Your math is way off. Assuming your estimate of market value is correct, from the investor point of view: Invest: $1,143,000 cash Return: 38% x 1,143,000 = $439,340 equity No control over the project or the cash The minimum lost on this deal is -62%. And no investor would put up that much money would willing to give up the control of the project. And $1,143,000 is enough to retire comfortably to a more affordable country, so what’s the “flight risk” here?
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Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Matt B.
Maybe you should read all of the messages before you jump to conclusions. Everything has been settled but you want to come in all macho and say your two cents haha and now you got everything started up again.
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Tim T.
Real Estate Agent · Columbus, OH · Member since 2016 · 8 posts · 6 votes
8y
Hi Brandon, just want to share my two cents. I work for an investment company as their realtor in ohio. About a year ago we closed on something like 150 rentals in a package. We then ended the leases and did some renovations and resold each home on the mls for market value. This netted millions of dollars and is definitely a good strategy. I think your best bet would be to negotiate a percentage on the purchase up front and then a standard 3% on the sale of each home individually on the mls after. This would give you a solid return for your time and putting the deal together. You would end up making a good return for your investor, and then you’d build a good relationship with him/her to rinse and repeat. I think you’re on the right track.
3 Reply
Matt B.
Investor · Bethlehem, PA · Member since 2016 · 229 posts · 122 votes
8y
@Brandon W. Im glad you shortened your last name to just "W" and deleted most of your profile. I would do the same if i was as embarrassed as you must be right now. you may have apologized for disrespecting and personally attacking some ppl on this forum but that doesnt make it settled. you havent apologized to me or to everyone else who will stumble on this discussion and completely waste 20 minutes of their time with your nonsense. unfortunately for you, my two cents is worth more than your deal. in fact, with my two cents, ill probably have a bigger equity position in it than you.
And im not coming in all macho, im just calling you out for what you are. your either a scammer or someone whos only knowledge of real estate is how to spell the word.
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Brandon W.
OP
Llanybydder, Wales · Member since 2015 · 83 posts · 11 votes
8y
@Tim T.
Excellent Idea....... thank you
0 Reply
Brandon Hicks
Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
8y
Wow...just...wow. I’ve done some crazy “no cash of my own deals” but if this one ever came together it would take the cake. And that cake would like taste rather unappealing.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
Originally posted by @Matt B.:

@Brandon W. Im glad you shortened your last name to just "W" and deleted most of your profile. I would do the same if i was as embarrassed as you must be right now. you may have apologized for disrespecting and personally attacking some ppl on this forum but that doesnt make it settled. you havent apologized to me or to everyone else who will stumble on this discussion and completely waste 20 minutes of their time with your nonsense. unfortunately for you, my two cents is worth more than your deal. in fact, with my two cents, ill probably have a bigger equity position in it than you.
And im not coming in all macho, im just calling you out for what you are. your either a scammer or someone whos only knowledge of real estate is how to spell the word.
You mean Brandon Whitaker from Phoenix, AZ edited his profile?
I hope people do read this thread, because it is a good lesson to all of us to run your own numbers. On the surface, his claim of quickly doubling your money sounded great. This is how any scam starts. A wonderful claim, but it is the details and math that uncover the truth.
I don't think he is trying to scam anyone. Just someone who is got too excited and needs to take more time understanding the numbers.
3 Reply
Ken Virzi
Long Beach, CA · Member since 2017 · 107 posts · 82 votes
8y
Why not sell 4 of the houses and get your down? then 100% ownership in the rest?
0 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
People that have made millions know HOW HARD it is to make that kind of money.
People asking for money that do not have the millions generally don't have a clue what it took to generate that cash.
People that have millions get offered opportunities DAILY to place capital. They are not going to put a large amount of money into something risky with an operator/sponsor who does not have a track record or experience. A return means nothing if it never materializes or the return/reward risk ratio is not there.
3% of 6 million is 180k. That can be great money for finding a deal IF it really is a deal.
I know people of great wealth. Nobody handed them anything and they didn't wake up one day with all this cash. They have a mindset of humility, a willingness to always learn new things, appreciation for people, and putting in smart work and risk adjusted returns.
Basically in my business I talk to millionaires on a daily basis looking to buy commercial real estate. I know how lot's of them think and make decisions.
The last thing a millionaire wants to do is make risky investments. Who is going to guarantee the 4 plus million loan? That has a currency to it as well.
I am 14 years in the business. I did not come out of the gate asking for the Universe. You have to crawl before you walk, walk before you run,etc.
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Collin Schwartz
Rental Property Investor · Papillion, NE · Member since 2017 · 398 posts · 1k+ votes
8y
I think a fair fee (and something I would happily take) is 1% plus the opportunity to follow the transaction from beginning to end. I am also a newbie, but have done over a dozen transactions in less than a year, and where I sit 1% is very fair. Just think, 1% or $60k can allow you to get two of these deals under contract in your name in the future.
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Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
8y
Whoa... What a fascinating read!
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Robert Sapienza
Sewell, NJ · Member since 2017 · 16 posts · 9 votes
8y
This feed:
Knowledge value: 0
Entertainment: 8
Time i will never get back: 10 minutes
The thing I love about BP is that it is extremely informative, but this was extremely cringe worthy and I wish no one gave this guy the time of day after he started talking the way he did.
8 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
The best threads are the ones where the poster changes his/her screen name in the middle of the discussion.
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Gregory B.
Brooklyn, NY · Member since 2017 · 68 posts · 28 votes
8y
PE fund terms: 8% return on investment, return of investment for limited partners and they take 80% of the remaining. Manager puts in 1% and takes 20% after returning all of the investors money.
1 Reply
Jacob CaddickPro Member
Investor · Casa Grande, AZ · Member since 2017 · 20 posts · 12 votes
8y
Jesus Christ...
2 Reply
Account Closed
Investor · Lubbock, TX · Member since 2015 · 16 posts · 11 votes
8y
Message me ASAP please. I’d give them my email on a public forum before reading another line of their post bc the first 3 liens told me all I needed to hear. email me I can fund it. Call me. I can get it funded. Capital is the easy part if you have to the connection already established.
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