How to Build Your Own Multimillion-Dollar Financing Network
Archives: Daily Issues
Issue #2397
- WEALTHY: What the heck is a hybrid investor? (Justin Ford)
- HEALTHY: A nutritional crystal ball (Kelley Herring)
- WISE: Warren Buffett on greed
ALSO IN THIS ISSUE:
- How to market a niche website (Alexis Siemon)
- Let’s play "Stump the Presenter" (Peter Fogel)
- It’s Good to Know… about living syringes
- Add "confute" to your vocabulary
The Truly Wealthy “Fish” in a Different “Lake”
These days, it seems everyone is out to make a quick buck. But they are all fishing in the same pond, so to speak. The real money is in a nearby lake… actually, more like an ocean of profits that almost no one knows about.
Take a walk with me and let me show how you can follow a few simple steps and lure more profits to you on a consistent basis than anything I’ve ever seen.
You’ve heard the old saying, “Give a man a fish, feed him for a day… Teach him how to fish, feed him for a lifetime.” Well, friend, this is that lifetime of profits available to you. Up to you how long you want to “fish” there. Personally, I’ll be there a long while… If you want to join me, click here… and learn how fast you can start making money.
"Be fearful when others are greedy and be greedy only when others are fearful."
Warren Buffett
Build Your Own Multimillion-Dollar Instant Financing Network – From Scratch
By Justin Ford
It’s ugly out there.
Properties aren’t moving; sales volume has plummeted. Foreclosures are up 48 percent from a year ago. Prices are down as much as 20 percent to 30 percent in markets ranging from Miami to Los Angeles.
So, of course, it’s becoming a remarkable buyer’s market.
But you need money to buy. If not yours, someone else’s. And therein lies the rub. Properties are getting cheaper, but financing is getting harder to find.
So today, we’ll look at the different types of investors you can pursue. And we’ll look at how to structure your offers so investors understand that (1) your interests are completely aligned with theirs, and (2) you’re offering them a good deal.
Are You Looking for Debt or Equity Investors… or Both?
Let’s say you’re looking at an apartment building selling for $800,000. It needs $150,000 in repairs. You’ll have $20,000 in closing costs and you want $30,000 in a dedicated bank account as reserves. Once you’ve rehabbed and leased up, the building will generate a net operating income of $120,000 a year.
So your total capital requirement is $1 million. And you have three people to whom you can go to get that money: Louie the Lender, Ed the Equity Investor, and Hal the Hybrid Investor.
Let’s go to Lou first. Keeping in mind that he is a debt investor, not an equity investor, here’s a simplified version of the kind of proposal that might appeal to him:
"Hey, Lou. I have a property under contract that will be worth $1.33 million once I rehab it and lease up. That’s what comparable properties in the neighborhood are selling for. I’d like you to lend me $1 million (75 percent of the after-repair value). In exchange, I will…
- Pay you a 9 percent interest rate
- Give you a first mortgage against the property
- Sign a personal recourse note (giving you recourse to all my personal assets if I should default)
- Make you the beneficiary on the title insurance
- Make you the beneficiary on the property insurance."
With a deal like this, even if the property doesn’t end up being profitable, you are making a commitment to pay Lou his interest and return his principal. And you are backing it up with your own assets.
Now my view on personal recourse contradicts what most real estate "gurus" teach. On the one hand, I agree that when dealing with institutions, if they don’t require a personal guarantee (and they often don’t for commercial deals), you should do a non-recourse loan. Hopefully, the institution is doing its homework and only lending up to the point where there is enough equity in the property to protect them. All the better for you.
However, when dealing with individuals, if you believe a deal merits their personal savings – then, at the very least, it merits your personal assets as collateral. What’s more, by willing to back up your promissory note and mortgage with your personal assets, you can get a better interest rate than if you only offer a non-recourse note.
Okay, let’s shift gears and see how you might approach Ed the Equity Investor…
"Ed! Have I got a deal for you! Pony up $360k and you get 50 percent of an undervalued, cash-flowing apartment building in an up-and-coming neighborhood."
You explain to Ed that the $360,000 is to cover the $160,000 down payment, $150,000 in repairs, $20,000 in closing costs, and $30,000 in reserves. He puts up the money. Once you’re done with renovations and leasing up, the property’s value has increased by $330,000 over your total investment. So Ed gains 50 percent of that increase, or $165,000. That’s a 46 percent return on his $360,000 investment in short order.
But wait, there’s the proverbial "more!"
Ed also will get 50 percent of the distributed cash flow on the property. As I said, the net operating income on this building is $10,000 a month. If you borrow $640,000 at 7 percent over 25 years, your monthly payment will be approximately $4,525 a month. That leaves $5,475 in free cash flow. Let $1,000 per month accumulate as added reserves, and you have $4,475 per month to distribute.
Ed’s half of that distribution is about $2,238 a month or $26,851 a year. Against his $360,000 investment, that works out to a dividend yield of 7.5 percent. And that’s on top of the 46 percent equity gain he made in the first year. Ed is doing great, especially on – what is for him – a totally passive investment!
You’ll find that debt investors (like Lou) are generally people who want safety first and would like income now – such as retirees and people late in their career who are in wealth-preservation mode, rather than wealth-accumulation mode.
Equity investors (like Ed), on the other hand, often don’t care about current yield. They have a good income from their job, so they don’t need passive income right now. Instead, they’re more interested in the maximum leveraged returns they can get on a property – without having to do any of the work or management themselves.
But there is a third class of investor that likes to choose from both menus. They want a higher total return if the risk can be mitigated or eliminated. I call these investors "hybrids," since they’ll be receptive to offerings that include the safety features of a bond and the leveraged, higher potential return of an equity stake.
So what kind of offer can you construct for them? One that has guaranteed yield and a piece of capital gain… and maybe even some of the net cash flow. For example, here’s the proposal you might make to Hybrid Hal…
"Hal, baby! I got the best of all investment worlds for you."
You describe the property and explain why it will take $1 million to do the deal. But instead of offering Hal a 9 percent guaranteed yield or 50 percent equity, you offer him some of both. You might, for example, offer a 7 percent guaranteed yield plus 20 percent of the capital gain and 20 percent of the net cash flow after the payment of the note.
This is a great deal for Hal. He has the security of a bond. (You’ll collateralize it and structure it as such.) Yet he could end up making 12 percent to 15 percent a year with this kind of lower-risk investment. And it’s a great deal for you, since you end up with 80 percent of the capital gain and net cash flow.
(Of course, you wouldn’t really use language like "Hey, Lou!"… "Have I got a deal for you!"… or "Hal, baby!" in your proposals. That was strictly color.)
Structuring the Right Deal for Potential Investors
The key to making all three of these approaches work is to:
1. Recognize what most interests your potential investors: low-risk, collateralized income now… leveraged capital gains… or a combination of both.
2. Structure the offer in a way that gives your investors 100 percent confidence in it. That means you align your interests with theirs. When in doubt, you give them the benefit of that doubt. In other words, your first priority is the return of your investors’ capital. Then – and only then – do you start splitting profits.
Here’s what that means for every equity deal you put together…
- The only way you can make money as the general manager is if your investors make money. Period. No exceptions.
- You invest your personal money in all of your deals. It doesn’t matter if it amounts to only a minor stake of total equity capital. The point is, you have money to lose and you don’t get your money back until your investors get 100 percent of their money back. So you have no reason to enter the deal unless you believe it will be profitable.
- You get the bank financing. The investors are never on loan docs and never have any liability at all for the mortgage loan.
- You do NOT charge fees. This, again, is controversial. Some gurus advise you to charge fees on equity deals. But - especially when you’re starting out – it’s important to make it clear to your investors that the only way you can make money is if they make money. Later, if you go into real estate investing full-time, you can charge fees to keep the office running. But even then, make sure your fees are fully disclosed and not a "surprise" or buried in fine print.
- Provide regular reporting to your investors, at least quarterly. The report should be a brief description of the market and the property – not to exceed one page for each – followed by financial statements, including income statement, balance sheet, and general ledger.
I’ve relied on these same basic principles time and again to fund my deals and make my investors healthy returns. As a result, investors become repeat investors, and they recommend me to friends and associates. And as a result of that, I always have more money available to me than I can put to work… so whenever an excellent deal arises, I’m prepared to act.
[Ed. Note: Now you know how to go after funding for your real estate investments. But if properties in your area are still over-inflated, you may need some guidance to find the investments themselves. Real estate expert Justin Ford knows how to locate the best real estate values in the country. Find out where you can make your real estate riches right here.]
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Could You Make a Few Thousand Dollars Online in Just a Few Days?
By complete accident, one person discovered an Internet “golden door” that helped her make thousands online for just an hour or two of work. The money showed up in her account a few days later.
Here’s the thing though. This isn’t some one-off fluke. It’s entirely repeatable. Sometimes more, sometimes less money comes in. But one thing’s for sure… there’s no limit on how often you can copy this simple process.
In fact, I guarantee this new program does exactly what it promises. You can try it entirely risk-free. Just click here to get all the details and get started today!
Dear ETR: "What is the best way to make people know about my website?"
"I do websites for service companies. I am just starting out, and I’m focusing on plumbers. If I research the keywords ‘websites for plumbers,’ there are almost no searches recorded. For the keywords ‘websites for plumbers,’ I currently come in as #2 in Google. However, I do not get much traffic from these keywords.
"What is the best way to let plumbers know about my website? My target would be a small plumbing business that does not yet have a website."
Rick Parsons
Upper Arlington, OH
Dear Rick,
Search marketing is pretty tricky for such a small niche, especially when your target market may not know they need your services. But don’t worry – there are plenty of ways to get in front of your audience.
Every trade has its industry mags, and plumbing is no exception. A quick search will lead you to all sorts of plumbing industry publications, both online and offline. You could try taking out ads on their websites or in their magazines. You can also try targeting online plumbing networks, plumbing schools, and general vocational schools.
Some of these websites are even displaying ads from Google, so though you can’t use Google AdWords for search, you can definitely use their Content Network to target the specific niche sites you want to advertise on.
- Alexis Siemon, ETR’s Search Engine Marketing Specialist
[Ed. Note: No matter what type of business you're in, there's a way to market it to your specific group of potential customers. Get easy-to-implement marketing tactics from ETR's team of experts right here.
Have a question for an ETR expert? Send it to AskETR@ETRFeedback.com and we may answer you in ETR.]
How to Deal With Difficult Listeners
By Peter Fogel
Adding a Q&A session to any presentation is usually a good idea. But your audience won’t always be as cooperative as you’d like them to be. Here are two situations you might encounter – and how to handle them.
1. Let’s Play "Stump the Presenter." Some people get a kick out of asking super-hard questions about the subject you’re supposedly an expert in. So what do you do if you don’t know the answer?
The last thing you want to do is give them the satisfaction of seeing you sweat. Respond by saying something like, "That’s a great question and I don’t want to give you the wrong information. Let’s exchange contact info and I will get back to you."
2. Attack of the Angry Audience Member. Every once in a while, you’ll run into an audience member who is aggressively confrontational – maybe because he had a bad experience with a product made by the company you’re representing,. The best way to defuse the situation quickly is to acknowledge the problem.
Ask the questioner for his name. Then say, "Leonard, you’re right. But I know for a fact that the engineers are working to get the bugs out. See me after this talk and give me your phone number. I will personally make sure you either get a refund or we satisfy you with another unit that works."
As long as you’re honest with your audience and don’t allow yourself to get flustered, you should have no trouble dealing with any difficult questions that come up during or after your presentation.
[Ed. Note: You don't have to be a professional speaker to benefit from public speaking techniques. They can help you convey your message better to colleagues, employers, and clients. Get public speaking expert Peter Fogel's guide to speaking like a pro right here.]
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Does Your Diet Fit in Your Genes?
What if you could look into a crystal ball and predict the health problems looming in your future? And what if you could actually change your fate… with the power of what’s on your plate?
Believe it or not, you can. The day of genetic testing and nutritional prescriptions based on your, well, weak genes, has come.
According to Mark McClellan, Commissioner of the U.S. Food & Drug Administration, "Nutrigenomics envisions a future in which personalized genetic profiling takes the guesswork out of deciding what you should eat. By adjusting nutrient composition in a person’s diet according to genetic profiles, gene-based nutrition planning could one day play a significant role in preventing chronic disease."
If you want to find out if your diet fits in your genes, there are several services available, including one from 23andMe.com and a Solgar product called NutrigenomX. Expect to pay around $1,000.
[Ed. Note: If you don't want to shell out $1,000 for genetic testing, you can STILL get fit. It's as easy as making a few simple changes to your diet and exercise regimen. Start on the path to a better, healthier life right here.
And for healthy and delicious recipes, check out Kelley's website, HealingGourmet.com.]
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It’s Good to Know: Living Syringes
Zoo veterinarians have always found it difficult to draw blood from their animals. Large animals often need to be sedated first, and with small animals it is difficult to find a vein. But several zoos in Germany and England think they have found a solution. They are using blood-sucking insects ("kissing bugs") to draw the blood for them. The bugs are placed in a container, which is then pressed against the animal’s body. When the bug bites, it is scooped up into the container, and the vets have their sample.
(Source: Popular Science)
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Success Is Just 15 Minutes Away
If you don’t have an extra 15 minutes to devote to your success, then you might as well say goodbye to your dreams.
Be honest. 15 minutes a day is NOTHING. You fly through that much time chatting at the water cooler or skimming TV channels or flipping through that magazine on your desk.
But those little bits of time add up. Big time.
Just think what would happen if you devoted that time to working toward your dreams of building a business, running a marathon, learning a new language, or dropping 25 pounds.
Give us 15 minutes and we’ll get your butt into gear…
- Charlie Byrne
Associate Publisher, Early to Rise
Word to the Wise: Confute
To "confute" (kun-FYOOT) – from the Latin for "to put down to silence" – is to overwhelmingly prove to be false.
Example (as used by Geoffrey Wheatcroft in The New York Times): "A professor of geography does not feel obliged regularly to confute those who believe that the earth is flat."
[Ed. Note: Become a more persuasive writer and speaker ... build your self-confidence and intellect ... increase your attractiveness to others ... just by spending 10 VERY enjoyable minutes a day with ETR's new Words to the Wise CD Library.]
Copyright ETR, LLC, 2008
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