Enter the complicated world of real estates


Commercial Real Estate: Raising Equity

Those researching the subject ofbecause they will be your primary
commercial real estate investment areinvestment vehicle. They also establish
likely to encounter the term "OPM" on awho is responsible for what actions
regular basis. OPM is an acronym forthrough the life of the investment.
"Other People's Money." I've coveredSecond, you need to learn about and
this topic in general in an earlierunderstand a document called a "Private
article, but today I want to focus onPlacement Memorandum." It has other
raising "equity" for your commercialnames like "Investment Circular,"
purchase transactions."Investment Disclosure," etc. This is
To review, the reason many people arethe document that discloses all of the
reluctant to invest in commercial realpotential risks inherent in your
estate is that the property values areproposed investment. You need to be
often so high that it takes a great dealextremely thorough in discussing those
of money to complete a transaction, evenrisks because should something go wrong
using75% to 80% loan to value commercialwith the investment and you don't cover
loan. Few individuals have theit here, you could be subject to a
financial resources needed to buylawsuit. One key aspect of this part of
suitable properties for cash, let alonethe process is having a good attorney
the $1,000,000 or so you would need toworking for you with experience in these
purchase even a moderately pricedtypes of transactions.
$4,000,000 building. This is where theThird, you need to have good analysis
concept of using other people's moneyand presentation skills. You should
comes into play. The idea is to poolknow the ins and outs of spreadsheets
the funds of like-minded investors to(or know someone who does) so that you
purchase a property and then duplicatecan dissect a transaction completely and
the process to build a portfolio.put together a good case for making the
The difficulties facing most investorsinvestment to your potential investor
are finding the other people with thepartners.
money and proactively structuring theFourth, you need to find the investors.
transaction. Everyone needs to be clearStart with busy, successful people whom
on their role in the transaction, howyou know, who have more money than time:
profits (or losses) are distributed, howYour doctor, dentist, psychologist,
results are reported, and how theveterinarian, accountant (who is really
project ends successfully. The processgood for knowing OTHER busy, successful
is not as difficult as it may seem atpeople with more money than time),
first and it even has a name:attorney, dry cleaner, golf pro, etc.
"Syndication." Potentially, evenYou'd also be surprised how many people
commercial real estate syndicators withyou know who have I.R.A.'s or 401k plans
little or no credit history have accessfull of under-performing money who are
to hundreds of thousands of dollars, alllooking for a good investment vehicle.
as close as the people they alreadyYou can advertise for investors, but be
know. One word of advice here, though:VERY careful before doing this. You
Start making a serious effort to cleanMUST talk to your attorney about local
up your credit if you are challenged insecurities laws and how they affect what
this manner. You may have to guaranteeyou say and to whom you say it. You
some loans and you don't want yourwant calls from investors, not
credit history to be a stumbling block.regulatory agencies!
Before you start telling everyone youThe process of raising commercial real
know that you are raising money for aestate investment equity isn't rocket
commercial real estate investment, therescience, but it does involve some study
are some things you need to know andand the help of some knowledgeable
that you'll likely have to research:professionals. Take your time to do it
First, you need to understand investmentright and you'll be making more money
entities, such as Limited Liability(your own, this time) than you thought
Companies. You need to know how theypossible.
are formed, operated, taxed, and unwound



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