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RichardtheFrog
10-18-2014, 07:18 PM
I want to start a business where I buy rental properties, both commercial and residential.

I want to attract investors. How should I do this? Are there businesses like this already? Is this what a REIT is?

I don't want to just borrow from the bank.

Harold Mansfield
10-18-2014, 10:20 PM
I want to start a business where I buy rental properties, both commercial and residential.

I want to attract investors. How should I do this? Are there businesses like this already? Is this what a REIT is?

I don't want to just borrow from the bank.

Here's the thing about looking for investors when you have absolutely no money: They don't need you. Especially something like Real Estate.
Furthermore, there's something wrong with an Entrepreneur who CAN get a loan to finance his business, but doesn't want to take the risk himself. I wouldn't touch that guy with a 10 foot pole.

RichardtheFrog
10-18-2014, 10:34 PM
My problem is lack of income. My credit is up to par, I just don't have the income stream to finance large purchases. But I think I could give a solid return to someone who does.

I think it's a safer bet than the stock market. How would I find these potential investors in the first place? Is this what venture capital is? Should I sell bonds?

If someone gave me $2 million right now, I could give them a return on it, so I just need to find that person

If they don't know how to invest themselves, they need someone who does.

Freelancier
10-19-2014, 08:05 AM
Yes, what you're describing could be a REIT... either way, once you start taking in investors, you have Federal rules to follow that are enforced by the SEC. So your first stop should be a good corporate lawyer with experience in this situation, so that you learn what you need to know to attract investors honestly (because nothing is worse for your ability to sleep at night than a pissed-off investor who just lost $2 million because of something you did). You can't just start taking investment money from people without knowing what the rules are for it.

But, if your money isn't at stake and you don't have a successful track record of handling a situation like this, there's no way anyone but family is going to invest in your idea.

Harold Mansfield
10-19-2014, 10:24 AM
But, if your money isn't at stake and you don't have a successful track record of handling a situation like this, there's no way anyone but family is going to invest in your idea.

Exactly! Don't take this the wrong way, but right now you're in the dreaming stage. You're not thinking realistically. You're at the "If I could just find someone with money who'll trust me, I can get this going". I'm here to tell you that is more times than not a pipe dream. As I said, a private investor who doesn't know you, who has $2 million laying around doesn't need you to give them a return on real estate. They've likely already been where you are, know how to do it, and don't need to risk their money and share the profits with someone who has no track record and no skin in the game.

Real Estate isn't something that is proprietary. Now if you had developed some new process, or product, or programmed some great new tool or program, then yeah...private investors may take your meetings. You don't have that. I'm here to tell you even if you have some great new Real Estate idea that no one has ever thought of in hundreds of years, it's not proprietary and most people will just take your idea and cut you out of the loop. Again, they have the money. They don't need you.

You need to get into the realism stage of how to get from where you are now, to where you want to be. Lack of income is almost everyone's problem, not new to just you. So you want to go into business for yourself and you have no money..so do a million other people.
Once you come to grips with the realization that it is unlikely that any one is going to just give you money, if you still believe in your plan you'll come up with a way to get there yourself. It may take you a few years, but it will be a few years well spent learning along the way.

If most of us had waited for someone to give us the money, we'd all still be dreaming.

If you don't put in the work, put everything you have into it, and risk your own assets no one is going to take you seriously. Furthermore, you aren't going to respect the game. Of course it sounds simple when you aren't loosing your own money. But when you have your own stuff on the line, it's a different game and play it much smarter.

Don't get me wrong. If you have a friend or family member with that kind of cash, go ahead and pitch them and see what happens. I think once you get a few "No" under your belt, you'll start thinking a little more realistically and come up with a plan that involves you doing more to put yourself in position to be successful.

Paul
10-19-2014, 05:00 PM
Just to tag on to Freelancier and Harold with my two cents, I have to say you are working it backwards.

Here is the answer for you. It’s simple. Find the deal FIRST, and then find the money.

You will NEVER find any legitimate investors until you have a deal. They are not going to invest in you, but they may invest in an attractive deal.

Fulcrum
10-19-2014, 05:17 PM
Harold, Freelancier, and Paul have covered everything - though I do disagree somewhat with Paul's final statement.

Any time you use a lender/investor, they are investing in you (secured by the project at hand) by means of your ability to manage the properties and your work to protect their investment and to generate their return (initial cash + profit).

RichardtheFrog
10-19-2014, 09:09 PM
I am working on doing it myself by improving my credit. I see deals everywhere. Every house on the market is a potential deal even if it just nets me $150/month. I may not have a family member who will loan me the money outright, but I do have one that might be willing to cosign loans if he sees I can effectively rent and manage properties. And I do have someone that will loan me the money once my stuff is in order - banks.

Wozcreative
10-19-2014, 10:17 PM
It is better for an investor to just hire someone to manage properties than to give money to someone who has nothing to offer. Why would they even bother?

The fact that you have to work on improving your credit is another sketchy thing... as far as I understand cosigning is usually done if you have terrible credit where banks cannot trust you to pay it back. They then need to tack it onto someone who actually does have something to lose.

RichardtheFrog
10-19-2014, 10:26 PM
Because I could buy properties and rent them out and at least be able to give them a % of return. That's what a mortgage would be from a bank anyway. I do have something to offer. Maybe they don't know, or don't bother, to look for good investment properties.

The banks I've talked to said that cosigners can only help with income issues on mortgages. They still take the lower of the credit scores. I'm not sure that is true in all cases, though.

Either way, I could have delusions of grandeur, but really I just need 4-5 houses and I'll be set.

Wozcreative
10-19-2014, 11:48 PM
4-5 houses? Set for what? You won't be making money month to month.. UNLESS you actually put down all the cash to buy the houses outright. You will have to wait 10 - 20 years to make some cash when you sell it. That's if there is no damage. You need to have a good sum of money in reserve if there is every any floods, cracks, damages etc.

I own a condo, I rented it out to 3 different families. ALL 3 years I have operated the business at a loss for various reasons (one year I had to lower rent because vacancies were high, one year my tenant didn't pay me and skipped town, one year my tenant painted terrible colours on the walls and I had to re-paint, another year the carpeting had wear and tear on it so I had to replace it at my own cost.).. on-top of that I also had to claim taxes as the rent being my income.

... to add to that.. I have owned the place for 8 years.. If I were to sell it, after taxes and agent costs.. I would be walking away with 30k.. This is located in TORONTO by the way... a big growing city. I purchased it SUPER dirt cheap after building was finished 4 months after.. the owner just wanted to get rid of it quick for whatever reason and I grabbed it. I got it for $25,000 cheaper than it went on sale for. It's a 1 bedroom + den by the way.. 600sft, just to give you an idea of what you're working with. Good luck with multiple houses trying to scrape a profit short term.

I originally bought it because I was 21, just finished college and I had some extra money that I wanted to put to some use.. I wanted to buy a place where I would hopefully move into, and I did eventually. I have a place that I own, but I will have to hold onto this place for many many many more years to make any money on it.

RichardtheFrog
10-19-2014, 11:53 PM
I can rent the place out for more than PITI in most cases. I know people personally that do this. As far as floods, etc., that is covered by the homeowner's insurance. I will do my own repairs and will save money that way. But yes, I will need a reserve fund for eventual roof repairs, etc.

How did you get it for $25,000 under the list price, btw?

Set for what? Set for LIFE! Retirement.

Wozcreative
10-19-2014, 11:59 PM
You do realize that in most states/countries a flood that comes from an "act of god" is not covered by insurance, right? You will have to fork over the man power and money to do it yourself.
Initially when my friend bought the house there was issues with the electrical which he had to hire someone to re-wire things. I doubt you would know how to fix major things like that unless you were a licensed electrician.

Luckily my friend had also a sewer backup (which is covered and they only gave him $10,000)... his neighbours and many people in toronto were not that lucky though as they had water come in only through their balcony doors (6 ft of water outside).

The $25,000 under list price was just a lucky draw. I saw 11 locations, picked this one, made an offer and they accepted it without any issues.

RichardtheFrog
10-20-2014, 12:09 AM
If my property were in a flood zone, I would get flood insurance. Or, I would just buy a property not in a flood zone.

Wiring is easy. That is not major at all.

Wozcreative
10-20-2014, 12:12 AM
Ok but you don't understand... flood insurance only works if it's coming from pipes.. not if your backyard gets flooded from rain. (obviously check your state laws).. here in ontario it's not covered. If there is earth quake, you're not covered.

RichardtheFrog
10-20-2014, 12:20 AM
In Florida, flood insurance covers natural floods and is required by banks for mortgages of properties in flood zones. There are no earth quakes here.

Freelancier
10-20-2014, 07:25 AM
Woz, here in the states, Congress has created a way to reasonably buy flood insurance for floods coming from outside your home. In Florida, you have hurricane riders on your insurance where your deductible is higher if that's what caused the flood, but eventually the insurance company will pay off. I say "eventually", because when a hurricane hits, a large number of people are affected all at the same time, so insurance companies are slow to pay for stuff.

GasMoneyGarage
11-08-2014, 08:07 AM
Sorry to say, Richard, but you are completely unrealistic. Based on what you have posted, you are setting yourself up for a rude awakening about the REAL costs of rental properties. Having done it, I don't even know where to start. But it likely wouldn't matter, because judging by your having an "answer" to each problem others have shown, you are probably going to do what you want regardless of any warnings.

How do I know? I was the same way.

Back up, do some learning, and start slowly with whatever money you can save on your own. WHATEVER you do, DO NOT buy anything with borrowed money. That's the best I can offer you.

RichardtheFrog
11-08-2014, 10:17 PM
I made this post a few weeks ago and will agree it was a bit speculative. Do not buy with borrowed money? Are you including mortgages in that? Because I know people personally who have done just that and now rent 10-12 houses that I assume they will sell for $1,000,000 when the mortgages are paid off.

Harold Mansfield
11-08-2014, 11:09 PM
Because I know people personally who have done just that and now rent 10-12 houses that I assume they will sell for $1,000,000 when the mortgages are paid off.

You seem to know a lot of people personally that are doing things that you want to do. You should really talk to them and learn something and stop walking around assuming things, which really means you have no idea you're just guessing.

RichardtheFrog
11-08-2014, 11:34 PM
Yes I do know them personally. And that's how I can do it. I have talked to them. There's not much to say. You can overcomplicate things if you want, or you can simplify and see that it is not worth being so complicated.

And you don't know how much research I've put in already. But what is the point in proving I know something that I already know.

Paul
11-12-2014, 01:34 AM
Sooo, do it. What's so complicated. Find any old property, get a cosigner, get a mortgage, rent it out, play video games for 30 years and then sell it. Sounds like a plan to me!

LianaCCB
11-18-2014, 11:37 AM
Have you looked into business credit cards? Easier to get than a traditional loan (especially for RE investors), and they generally have a 0% introductory APR. I have a lot of clients in real estate who utilize business credit cards to flip properties and help fill the gap of investment funds.

broudie
11-21-2014, 04:27 PM
Have you looked into business credit cards? Easier to get than a traditional loan (especially for RE investors), and they generally have a 0% introductory APR. I have a lot of clients in real estate who utilize business credit cards to flip properties and help fill the gap of investment funds.
^^This sounds something right out of 2006.

McKissick
12-03-2014, 02:26 AM
Traditional route taken through banks can be one of the option to start your real estate business, you can also apply for loan through creative financing. It is also one of the best method to apply for loan.

smallbizfinancier
01-08-2015, 05:37 PM
My advice: trying penning a Private Placement Agreement (PPM). Under SEC Reg D, you can search out high net worth investors (qualified) and have them invest on the debt or equity side. Try Googling PPM.