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