| Those researching the subject of | | | | because they will be your primary |
| commercial real estate investment are | | | | investment vehicle. They also establish |
| likely to encounter the term "OPM" on a | | | | who is responsible for what actions |
| regular basis. OPM is an acronym for | | | | through the life of the investment. |
| "Other People's Money." I've covered | | | | Second, you need to learn about and |
| this topic in general in an earlier | | | | understand a document called a "Private |
| article, but today I want to focus on | | | | Placement Memorandum." It has other |
| raising "equity" for your commercial | | | | names like "Investment Circular," |
| purchase transactions. | | | | "Investment Disclosure," etc. This is |
| To review, the reason many people are | | | | the document that discloses all of the |
| reluctant to invest in commercial real | | | | potential risks inherent in your |
| estate is that the property values are | | | | proposed investment. You need to be |
| often so high that it takes a great deal | | | | extremely thorough in discussing those |
| of money to complete a transaction, even | | | | risks because should something go wrong |
| using75% to 80% loan to value commercial | | | | with the investment and you don't cover |
| loan. Few individuals have the | | | | it here, you could be subject to a |
| financial resources needed to buy | | | | lawsuit. One key aspect of this part of |
| suitable properties for cash, let alone | | | | the process is having a good attorney |
| the $1,000,000 or so you would need to | | | | working for you with experience in these |
| purchase even a moderately priced | | | | types of transactions. |
| $4,000,000 building. This is where the | | | | Third, you need to have good analysis |
| concept of using other people's money | | | | and presentation skills. You should |
| comes into play. The idea is to pool | | | | know 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 duplicate | | | | can dissect a transaction completely and |
| the process to build a portfolio. | | | | put together a good case for making the |
| The difficulties facing most investors | | | | investment to your potential investor |
| are finding the other people with the | | | | partners. |
| money and proactively structuring the | | | | Fourth, you need to find the investors. |
| transaction. Everyone needs to be clear | | | | Start with busy, successful people whom |
| on their role in the transaction, how | | | | you know, who have more money than time: |
| profits (or losses) are distributed, how | | | | Your doctor, dentist, psychologist, |
| results are reported, and how the | | | | veterinarian, accountant (who is really |
| project ends successfully. The process | | | | good for knowing OTHER busy, successful |
| is not as difficult as it may seem at | | | | people with more money than time), |
| first and it even has a name: | | | | attorney, dry cleaner, golf pro, etc. |
| "Syndication." Potentially, even | | | | You'd also be surprised how many people |
| commercial real estate syndicators with | | | | you know who have I.R.A.'s or 401k plans |
| little or no credit history have access | | | | full of under-performing money who are |
| to hundreds of thousands of dollars, all | | | | looking for a good investment vehicle. |
| as close as the people they already | | | | You 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 clean | | | | MUST talk to your attorney about local |
| up your credit if you are challenged in | | | | securities laws and how they affect what |
| this manner. You may have to guarantee | | | | you say and to whom you say it. You |
| some loans and you don't want your | | | | want calls from investors, not |
| credit history to be a stumbling block. | | | | regulatory agencies! |
| Before you start telling everyone you | | | | The process of raising commercial real |
| know that you are raising money for a | | | | estate investment equity isn't rocket |
| commercial real estate investment, there | | | | science, but it does involve some study |
| are some things you need to know and | | | | and the help of some knowledgeable |
| that you'll likely have to research: | | | | professionals. Take your time to do it |
| First, you need to understand investment | | | | right 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 they | | | | possible. |
| are formed, operated, taxed, and unwound | | | | |