How to Get Money for Your Deals – Part II of the Rice Interview
A couple of weeks ago I shared Part I of my interview with Larry and Brent Rice – How to Make $100,000 in Six Months or Less. As promised, here’s Part II:
ME: Are there really such things as no money down commercial deals?
LARRY: Well, it’s hard to do that. Most 3rd party lenders on big deals (one million dollars or more) will require some commitment by the investment group. Generally, it’s going to take about 15%, so on a million dollars you’re talking $150,000. The question is where do you get the $150,000?
Well, one of the places that I have been successful with is some people with a lot of money. Those are my partners and when I find those partners, we’re able to secure a total of a 100% loan on the strength of their financials and our expertise. There are some regulations that keep banks and 3rd party lenders from loaning us 100%. So really, the only place to go is a secondary source such as an equity partner, somebody that would join you in the deal. But be careful; if you start selling securities, you need a securities license. And that’s what you’re doing when you start giving shares of ownership in investments, so be careful with that.
ME: Okay, you’re saying you can bring on a partner. How would people listening to this interview find a partner with that kind of money to bring into a deal?
LARRY: Most of it’s based on trust. If you know someone who has a lot of money but doesn’t want to spend the time searching for places to invest, and who trusts you and your energy and your entrepreneurial spirit, he might very well give you an opportunity to go out and invest his money. This is exactly what happened to us. Brent and I had the respect of two very wealthy men, one a doctor and one who owned a very large car dealership, and they put their financial strengths with ours and we were able to make something happen. I would also recommend that the deal you’re buying be very strong.
BRENT: I’d like to add something to that. I know a lot of you are in different parts of the country, but there’s a lot of money flowing into Texas that is motivated by tax deferrals. We don’t need to get too much into the whole 1031 tax-free exchange concept, but that is where the capital is coming from. People are just trying to defer their capital gains tax, and you can do that after you sell a property by placing the proceeds from that sale into another investment property within a certain period of time. These are people with money looking for their next deal with a sense of urgency, and they are a great resource.
Also, I’ve heard of deals on apartment projects with 90% loan to value. Again, that leaves a 10% equity requirement; in some cases you can get the seller to carry back a second, or you can go to a bank and get them to give you 100% loan. The bank will be looking for some credit strength somewhere. If you don’t have it, again a partner is a great source. Also, a bank you have a good relationship with can provide you with a ‘letter of credit,’ which you can then put up as collateral in lieu of cash equity.
ME: Excellent. Thanks for sharing that with us Brent. Let’s go back, how do you go about finding these partners or are they all part of some sort of group you can find on the Internet? How does that work?
LARRY: One of the recommendations that I would make would be to actually try to find a project or property first. Once you have one, then you can advertise that property; you can’t advertise a property you don’t own. Then you can use the Internet to let it be known that you are forming an investment group for the purpose of purchasing a particular property, and describe the property in general. I would suggest you go on Loop Net (www.loopnet.com), and you’ll find a lot of various kinds of properties there.
ME: Would a lot of good properties be advertised on a website like Loop Net? Is this where these package deals are and is this where the buyers go?
LARRY: When you’re trying to find a property to buy, there’s no good multi-family website or multi-listing service. I’m a member of several, and by the time I call those they’re already in contract. It’s really hard to find a multi-family project since they’re in such great demand.
Again, it’s not a bad idea to build your own portfolio like you’re doing with single family, but commercial is also a great way to go. There are a lot of reasons people want to sell real estate; someone who’s just getting old and doesn’t want to handle it anymore, or they’re tired of it and they don’t want to manage it anymore, these are great sources.
And there you have it! A little primer on Commercial Investing. If this area of real estate investing interests you, I highly recommend you listen to the entire interview. What you read here is just a small sample of the many tips Larry and Brent, two commercial real estate pros, shared during our talk.
You can get the audio for this complete interview and eleven others by ordering The Vault. The Vault contains in-depth interviews with expert investors from across the nation and covers topics ranging from rehabbing to subject 2 investing to private money and more. Learn how you can get your hands on the Vault at a 36% discount by going to www.myhousedeals.com/thevault.
Until next time, happy (and profitable) investing!