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