All Forum Posts by: Karl James

How about a straight up option. Pay $xx premium now for the right to purchase with y days for $zzzz. If you can, have the premium apply toward purchase if you do purchase, forfeited (kept by seller) if you walk. Or, do a buy side contract with a very explicit cancellation clause. I have had every seller accept such a clause and only exercised it once when the seller tried to get squirrelly before closing . Be careful with exercising cancellation clauses as you could get a poor reputation in a small market. Or, do both - cancellation and option clause. Gives the seller some value for having the property locked up while you figure out if you have deal - if you have walk.

Bottom line: I am looking for ways to bring others, who want to invest with me, into single deals. Will likely be different ‘partners’ for each successive deal and/or have multiple deals going at one time.

Background: I've been blessed to have had some decent success recently buying and flipping vacant parcels of land. Through the process of doing seven deals in the last 5 months, a few folks I know have noticed and expressed serious interest getting in on deals; i.e. invest money with me rather than try to figure how to compete in the same space.

Previously I've passed on some attractive larger opportunities as I was not willing to commit the cash to get into the deal. Ideally, I’d be wholesaling and not need to bring much more than earnest money into the deal. But for now. I am finding the deals, getting them under contract, marketing the properties while waiting to close, closing them by funding them with my own cash, and then selling and taking the cash and profits and lather, rinse, repeat.

Thus far the deals I am doing are such that my cash out of pocket from buy close to sell close has been in the $10k to $60k range each deal. I am finding opportunity to do more of the $40k to $80k deals but couldn't concurrently have more than one of those going at a time.

What I would like to do is figure out a way by which I can find and get a deal under contract in my name or the name of  a legal entity (i.e. Buyer = Karl James and/or assigns) and then bring in one to three additional participants so they bring cash to the table before the purchase closes and have them take their share of the cash out at sell closing.

Typically, I need to close the purchase-side within two to three weeks of getting it under contract. Then, I have been able to close the subsequent sell side within two to five weeks. My associates who have interest investing have real estate experience and can bring something to the table. One is a realtor, one has typically been a buy and hold (rent) SFR guy, another a SFR buy, fix, flip person. So, they may occasionally be able to bring a target purchase but more often be able to help find buyers – or even take the parcel themselves at at a reasonable discount to FMV and build a house on the land.

It feels a bit like setting up an entity per deal might be the right way to go – albeit might be inefficient; maybe take too much time and has more costs involved. I've thought about constructing one entity and selling ownership in it proportional to the percentage / amount any one or each ‘partner’ desires to participate in the deal. I.e. if for deal #1 I need $80k to close the buy, sell Partner A 25% of the entity for a nominal cost (e.g. $1,000) and partner B 25% and I hold 50%. Assign the contract to the entity. Require partners to infuse the cash required to buy on the same ratio as their ownership. Close the purchase, close the sale, for example for $160k, and distribute cash in the same ratio. Buy back the ownership interest for $10 each. I keep the $990 difference on the sell / buy back of the partnership shares as compensation for finding the deal. I.e. at the time I sell the shares, the partnership has more interest because it has a contract / deal to do. At the time I buy it back, it’s basically worthless because it has no assets and no potential deals in the works.

What I would rather do is figure out how to paper something up on a deal by deal basis that didn’t involve complicated in / out of entities each time if I have different participants at different levels for each deal. I thought about something along the lines of loans. But in the example above, having two different folks loan me $20k and then repay them $40k ($20k principle + $20k ‘interest’) feels a bit like usury at best and pay-day-loan shark at worst.  I'd rather stay clear of anything that smells like crowd funding and takes me down a how to deal with the SEC, etc. road.

I recognize this is a long post but I am looking for real ideas or real-life examples of how others have tackled such a situation and want the BP community to have good insight into the need.

@Seth Williams , Jay Hinrichs, Mark Podolsky, Douglas Larson, Michaela G., Steven Butala and other season land investors on BP - any thoughts?  Others who may not do land but ran across this doing other types of RE, I'd love your insight.

Thanks

I have bought a few parcels (vacant buldable lots and small acreage) and resold them within 30 to 45 days.  I talked to my State Farm agent and he advised for what I was doing, my existing homeowners policy woulld be cover but recommended adding an umbrella policy for $1 MM liability - which I did.

so, where are they putting an outlet mall in FBC?

What area of Houston? I've had good luck with Stewart Title out in Fulshear but less enthused with one of the branches is Sugar Land.

Texas - title company does both. The title company I use (local Stewart title branch) actual had an affiliated legal firm that does the search and opinion work (which they disclose the relationship in the closing docs).

@Account Closed

Nice job.

Sure, you may have had cash in it for 220 days - but an extra $20k pre-tax, $15k (37% annualized) after tax is a good thing.

@Sven Jessica

I don't know if it is of any help but there's a BP blog entry I wrote talking about how I got my arms around making cold-calls.

http://www.biggerpockets.com/blogs/6020/blog_posts/41602-cold-call-paralysis-how-i-am-attacking-it

It is good you have a partner nearby - they may come in handy.  But, I've been able to develop a good rapport with folks over the phone.  I just closed this week on a purchase from an owner in CA (I'm in TX).  I initially talked to her by phone in January.  She wasn't sure she was ready to sell, then.  I asked her if I could check back in by e-mail in a month.  She gave me her e-mail and I did.  They said they  gout her e-mail address and.  When sent her a note in Feb she said they had been thinking about it and would call me first if they decided.  She called me back and she sold me the property for what she bought it for 8 years ago - she and her decided they'd rather have a quick cash deal than try to market it from out of state.  I have in under contract to sale / close in 4 weeks.

But, you will get a lot of "No's".   Many more "no's" than "Yes or Maybe".  Just be courteous, ask them if they'd like you to check back in with them in a few months / 6 months, etc. - then get an e-mail.   I they say they aren't interested in you checking back ask them if you can send them a business card or contact information in can anything changes down the road.

@Sven Jessica

 I've done less than 10 deals,  all vacant land, and all the "buys" have been with out of state owners.  I have negotiated the deal (buy or ell) - which really means agreed a price and a closing time frame verbally (on the phone) with a commitment to send them a contract.  I get their e-mail while on the phone and then send them a signed PDF copy of a contract for them to sign and return by scanned PDF document.  I then take this contract to along with an earnest money check (if I am the buyer) to my local title company (which I specified in the contract).  I let the title company guide me from there.   At some point in the future I could elect to close with out a title company, but for now I appreciate the service they are providing.

I am in Fulshear and I, too, vote for a BP meet up in the area.