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..............................
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.
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.
OP should listen to Joel. As someone who does have the capital to fund this deal (and has worked with Joel in the past), he basically summed up my thoughts nicely.
I've talked to some of the most seasoned RE operators here on bigger pockets, and I would much rather go with someone who has an existing track record. The only way I would consider a deal like this is if:
1) The operator has already secured a majority of the needed funds (ie they have shown an ability to actually close on getting other investors and aren't banking on a single investor)
2) The operator is taking a significant discount from a more experienced operator since it's their first time.
I wish you luck OP. If you want to really get investment from people like me, I would advise you to be more thoughtful in your writing (I'm not sure how old you are but you come off as an emotional teenager) as well as learn basic math (as others have pointed out you don't seem to understand how to calculate returns in real estate).