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Standard Operating Procedure: Steps to Raise Capital for Equity Partnerships

Standard Operating Procedure: Steps to Raise Capital for Equity Partnerships. MIND MAPS: Download the Free Software www.xmind.net. “ If you chase 2 rabbits you will catch neither”. My View of Real Estate “ Funding = Freedom” This is my Rabbit .

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Standard Operating Procedure: Steps to Raise Capital for Equity Partnerships

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  1. Standard Operating Procedure:Steps to Raise Capital for Equity Partnerships MIND MAPS: Download the Free Software www.xmind.net

  2. “If you chase 2 rabbits you will catch neither”

  3. My View of Real Estate “Funding = Freedom” This is my Rabbit

  4. The Pancreatic Cancer Case Study 1467 Sunny Acres w/ none of my own cash or credit • Purchase Price $53,500 One week Prior to my surgery • Improvements $21,000 • Private Money $79,000 • Cash Back at Closing $25,500 • Acquisition fee $4,500 – I collected this up front • Sold $124,900 April 2012 • Gross Profit $50,500 • Net Profit $35,200 + 4,000 Acquisition Fee • (all completed while recovering from Pancreatic Cancer)

  5. Trulia.com & public records

  6. First Private Lender I Ever Got And I Had NO JOB, $15k Credit Card Debt and ZERO EXPERIENCE • Unsecured Note • 1st Note I ever did in Spring 2004 (non IRA) • 60k Loan / Note • 18% Interest / paid annually • 5 Yr. Note • 2nd note I ever did (IRA) • Interest Paid annually • $10,800 due in June every year • 90k • 10% • 5 Yr. Balloon • Unsecured • No Mortgage • No Security

  7. What Are Your Goals? • Rehab, Fix & Sell • 3-4 Months • Buy, Fix & Sell • Buy, Less than 5-10k improvements, resell • 6+ Months (BIG Projects) • Buy, Fix & Sell • Here’s the Thinking • 30-60 Days • Big Improvements • 45 Days to Close • Once a Buyer is Under Contract

  8. What Are Your Goals? • Back to Back Closing? • Rental? • 3-5 Year Partnership • Tax Lien • 6 Month Redemption • 1-3 Years • Option 1=18-24% • Guaranteed • Option 2=I Get a House Free & Clear

  9. Disclaimer / Disclosure • I am not an attorney….although I used to play one on T.V. • I am not a financial planner anymore….although I used to be from 1998 to 2005…. • I am not an accountant and have NEVER EVER wanted to be…. • Everything I say today is for informational purposes only

  10. Q. What is a Private Money Partner? A. Someone / Anyone who has cash who partners/ invests or loans to you / with you! A. Assets Can Include Savings, Checking, CD’s, Brokerage Accts, Liquidated Mutual Funds, Stocks, Bonds, Retirement Accts, Health Savings Accts, Lines of Credit,

  11. Q. Why Do Private Money Partners Give Real Estate Investors Money To Do Deals? A. Because The Investment Alternatives Suck and The Returns are Better in Real Estate….AND they like and trust you. Let me explain……

  12. CD Rates: 1% Return on Investment

  13. Annuity Rates: 4% Return on Investment

  14. Bond Rates: 3.85% Return On Investment

  15. Consensation Drives Behavior S&P 500: Last 5 Years = ONLY 7.2% per year

  16. S&P 500: Last 10 Years: 6.71% Return on Investment

  17. Precious Metals

  18. $500,000 Mutual Fund Investment • American Funds = Small Cap World • Exp ratio = %1.09 (paid to the fund manager) • @ 10% = $50,000 Profit / ROI • @ 8.91% = $44,550 Profit / ROI • “A” Share Commission • (paid to the financial advisor who sells this mutual fund to their client) • $500,000 = 2% (breakpoint) = $10,000 • $500,000 - $10,000 = $490,000 - $5,341 (%1.09 exp ratio) = $484,659 left (zero ROI) • $15,341 dollars in FEES for American Funds • $1,500 dollars in FEES for Equity Trust (self directed IRA)

  19. Share Classes • Class “A” Shares – up front commission • Class “B” Shares – back end commission & higher expense ratio • Class “C” Shares – small annual commission & highest expense ratio

  20. “LOAD” / “NO LOAD” • Load = Commission • No Load Fund = No Commissions • Paying a money manager = charge a money management fee • EX: Sell no load funds BUT charge 1% money management fee + 1% expense ratio

  21. Variable Annuities • Act Very Similar A Mutual Fund • BUT • Access To 40 Funds Within The Annuity • Transfer From Fund To Fund With No Expense • 3% Commission Up Front • AND • 2% Exp Ratio Per Year Every Year

  22. SUMMARY: If you were a private investor with an OLD 401k, where would you rather invest? • OPTION “B” = US • We pay 12% minimum • ~OR~ • 15% of profit • Whichever is greater? • Predictable • Control over investments that you can see and touch • THE WEATHY DO OPTION “B” OPTION “A” = NOT US • CD = 1% • Annuities = 4% or less • Bonds = 4% or less • Stock Market past 5 yrs= 7.2% • Stock Market past 10 yrs = 6.71% • Significant Volatility • No Control over Investments • THE WEATHY DON’T DO OPTION “A”

  23. Favorite Source of Funding for $40k Flips? • A Self Directed IRA is an Individual Retirement Account where the owner funds real estate deals. • We get the funding for our $40k Flips from IRA’s. • Sample Investments • Note (I.O.U) w/ Mortgage • Fraction Deeds • Invest in Stock Companies BUT NOT S-corps

  24. MORE INVESTMENT CHOICES Mobile Homes Mortgage Notes Trust Deeds Tax Liens Lease Options Precious Metals PPMs LPs & LLCs Mutual Funds Stocks & Bonds Real Estate Unsecured Notes Leasing CDs Factoring and more....

  25. REAL ESTATE IRAs Real estate can create a life-long, tax-free income stream. ~ Real estate investing is one of the major attractions of Self-Directed IRA investing ~ Rental income is tax-deferred (distributions are never taxed if in a Roth IRA as long as the asset is held in your plan for at least five years ~ Keep in mind that you may never personally use the real estate while it is held in your plan. After age 59½, you may distribute the real estate to yourself penalty-free, and then occupy it

  26. REAL ESTATE PURCHASE STRUCTURES 100% Cash – Property may be purchased with cash from an IRA. with your IRA with the IRA owning 100% of the property. Partnering – An IRA may partner with another person, entity, or IRA. ~ Your IRA owns a percentage of the property ~ Can partner with personal funds (and/or disqualified persons) Leverage – A (mortgage loan) to purchase property. ~ Must be a non-recourse loan ~ Typically for income producing properties with 35% to 40% down ~ Leveraged portion of the investment may be subject to UBIT (Unrelated Business Income Tax)

  27. 3 Step Process • Set Up A IRA Acct = iPlan Group (Acct Application Form) • Fund The Acct = (Rollover / Transfer Form) • Rollover = from 401k or 203b • Transfer = from another IRA • Make An Investment (Direction of Investment Form) • Copies of Note and Mortgage

  28. Note and Mortgage • What is a Note? • I Owe You • Who is the Borrower • Who is the Lender • What is the Interest Rate • When is the Interest Due and Payable • Monthly • Quarterly • Annually • Payback • 1 Year / 3 Year / 5 Year • Amortized / Balloon??

  29. 1st Note and Mortgage

  30. 1st Note and Mortgage

  31. 2nd Note and Mortgage

  32. 2nd Note and Mortgage

  33. Notary • Mortgages • Do have to be notarized • Notes • Do NOT have to be notarized

  34. CASE STUDY 3954 Homestead Rd Ravenna, OH • Purchase Price $41,500 • Private Money Partner Funding $79,000 • Self Directed IRA • Cash Back at Closing $37,500 • ACQUISITION FEE $3,400 PAID TO ME WHEN I BOUGHT IT • None Of My Own Cash or Credit • Actual Sold Price $121,000 • Profit $44,000 • Closing October 15th 2013

  35. This is exactly what it looks like to sell a house for HUGE PROFITS!

  36. April 24th 2013 at 4:54 pm

  37. Securities Dealers? • We are not securities dealers! • What is and is not a security? • Q. If you are dealing with a security / what disclosures or documents do you have to file to be compliant? • A. Private Placement Memorandum

  38. Securities DealersFederal Rules • Securities Act of 1933 • Securities Act of 1934 • Reg D • Rule 504 • Rule 505 • Rule 506

  39. Securities Dealers State Rules Ohio“Blue Sky Laws” • Real Estate is NOT a Security (exempt) • Notes and Mortgages are NOT securities (exempt) • Tax Liens are NOT a Security (exempt) • Partnerships & Businesses & JV’s are NOT Securities (exempt)

  40. What Is & Is Not a Security • WHOLE Notes & Mortgages are NOT Securities • They are EXEMPT • Fractional Note IS a Security • I do not personally do these • *Anthony Geraci, Esq

  41. Three Ways • LOANS • Notes & Mortgage • 12% Int. or 15% of Profit • ~Whichever is greater~ • I do not pay them anything monthly or quarterly • Investor gets paid when house sells ~OR~ • Balloon Payment • 1 yr.

  42. Three Ways • Loans (notes) from Investors to Your LLC • Benefits • You own the property 100% • You make all the decisions • The Lender is “The Bank” • Disadvantages • You are REQUIRED to fulfill on the promise you made on the NOTE (I Owe You) • You Pay or They Foreclose!

  43. Three Ways • JV PARTNERSHIP • Fractional Deed for ownership • Join Venture Agreement for decision making • Benefits • No Lender Liability • They bring in the money and they are co-owners so they have the downside

  44. Three Ways • LLC CO-OWNERSHIP • 50/50 Partner in the units of the LLC • Can split profits 80/20 or 70/30 or whatever you agree to • Benefits • No Lender Liability • They bring in the money and they are co-owners so they have the downside

  45. Raising MoneyPeople that I have a prior existing relationship • Equity Partnership • Business • LLC • Partner On Deals • Chuck Finds the Deals • Jimmy Puts Up the Money • Joint Venture • Does NOT need Registered

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