HELP w/ comm. invest, 100% financial backing! - Posted by Scott D

Posted by Scott D on August 07, 2003 at 24:48:19:

I want to offer 100 THANK YOU’s for the excellent, time-consuming, and THOUGHTFUL response you put into this. It is exactly what I was looking for. I too have seen enough “opp’s of a lifetime” of my friends and family, and of my own accord, to know they all too often fall apart. But at the same time, if I don’t go 100% on this chance, I’ll be wondering forever. As you said, at least I will have submersed myself into something so completely, that I will have an excellent working knowledge of the Phoenix market etc… I see nothing but positives in this, regardless of what happens. So again, thank you!!!

HELP w/ comm. invest, 100% financial backing! - Posted by Scott D

Posted by Scott D on August 01, 2003 at 16:29:15:

I am moving to Phoenix, Arizona to buy commercial properties on behalf of two guys with the ability to buy all properties with cash. In 2 months I will be flying to meet them and give a 1 hour presentation and business plan. I will essentially be their eye’s and ear’s, and arrange all relationships with them in the Phoenix area. I am leaning toward 100+ unit apartment buildings to start.

I am new to this, but they are more concerned with me as a person and how we “click”… a person they trust greatly referred me to them, and they are happy to help me out with their deep pockets, as they also got help along their way to riches. I have already posted, with no response, but really do need some advice for books, websites, information, and the like. I intend to blow these guys away, and leave no “needed item” go missed or stone unturned etc. With a sound approach and business plan, they will finance everything… what are recommended property-types… needed relationships in terms of property mngm’t companies, RE agents, lawyers, and all that fun stuff? Your help is SINCERELY appreciated! (Also, any books etc for RE business plans and commercial investing?!)

Okay, how about a plan? - Posted by ray@lcorn

Posted by ray@lcorn on August 05, 2003 at 22:54:22:


I’ve been thinking about this since you first posted, and started to answer a couple of times. But my first instinct has been to tell you the guys will likely never deliver. I can’t count the times I’ve heard this very scenario, and I have yet to see it come about. But I hate to shoot somebody down just because it sounds outlandish. Much of my career has been marked by taking on long-shot projects… a few of them worked and worked well. A few more didn’t. I probably learned as much or more from the ones that didn’t work as the ones that were a success. I’ve often said my title should be “Professional Rainbow Chaser”.

So what do I know… maybe this is the one “benevolent rich guy backer” scenario that will come together… and I like to think in possibilities rather than roadblocks anyway. So here’s one way to approach it… feel free to modify as you wish.

First, spend the next two weeks learning everything you can about commercial real estate. A great overview of the business is Howard Zuckerman’s “Real Estate Investment and Acquisition Workbook”. It’s available on Amazon. Get overnight delivery to save some time. While you’re waiting, read as many of the articles here on CRE Online as you can… specifically, read my article on due diligence at
and the one on valuation at

Then decide which type of investment real estate that most closely matches your abilities and interests (and the market), and spend the next two weeks learning all you can about that particular kind of investment property. There are four major food groups? Retail, Residential (multi-unit), Office and Industrial. Pick one or two, and focus on learning the ins and outs of what makes them, work. Come back here and let me know what kind of property you’re looking at and I’ll try to give you some more reading suggestions.

Then you need to check out the Phoenix market and some properties. Try your hand at doing some preliminary due diligence… dig into a deal and find out what makes it a deal, or if it really IS a deal. Then do it again and again. In fact, spend two weeks looking for at least five good, profitable deals. Real deals are found in about one out of ten offerings. “Okay” deals run about one out of five. The rest are overpriced, wrong type, wrong area, misrepresented, or a seller looking for a free appraisal. That means three out of ten may be acceptable, so figure on looking at twenty deals to get five possibles. Don’t forget to get the market details (competitive supply, rental rates, occupancy rates, population demographics, etc.) to include in your analysis of the best five. Now you’ve got a product to pitch.

Then you’ve got two weeks left to pull together a plan. You should include overall market information, an analysis of the prospective property pool and the five deals you’ve identified, and identify competitive set for each of the selected properties. Your plan should establish the due diligence protocols that will be utilized, and have preliminary information on the selection of a broker, an appraiser, a lawyer and the rest of the team it takes to acquire, manage and maintain property.

You also need to put thought into the operating agreement of the ownership entity. LLCs generally work best for long term hold properties, corps for flips. Joint ventures and REIT structures are not appropriate here. Simple, but thorough, is best. You’ll either need to obtain legal help to get the proper structure in place to protect you, or make time to do a lot more reading. John Hyre on the legal forum here at CRE Online can help there.

You should budget for the operating entity to pay you for your services and establish the operating parameters of who is in charge of day-to-day operations. I would want to own an equal interest with the money partners from the get-go… an earn-in is too tricky to administer, and can take thirty pages of legalistic CYA on both sides. Understand that there is no way you will have anything but a surface understanding of the proposition in this time frame, and even less about who you are dealing with. Keep it simple. The plan should say how much money is needed, how much will be made, and how (and when) it will be divided.

Now you have a decision to make… you can either try to bluff your way through the pitch and hope they don’t ask any really hard questions… like whether or not they could lose money… or be honest and lay out a plan to fill in the unknowns. There will be plenty of them. Me, I would acknowledge what is unknown, and make a priority of getting the answers. I would also lay out a worst case scenario. Experience continues to teach me that Murphy’s Law is alive and well in the real estate business, and ignorance of the consequences is not a defense.

At this point I’d make the pitch for them to fund the venture from that point forward. Your plan should predict the operating funds needed to get through the first year of operation, including acquisition budgets and your fee for putting the whole operation together. I’d ask for those funds to be made available immediately upon signing the agreements in order to move forward.

This is where these deals usually fall apart. The money guys say, “This looks great. Let me get my people to look it over before we sign”, and the chase is on. You’ll spend the next month chasing your tail trying to answer every objection a $400 per hour lawyer can come up with… it’s a lot like wrestling with a pig in a puddle… you get really dirty, and then notice the pig enjoys it.

So worst case, you’ve done a lot of work and they don’t perform. Let’s hope you’re the exception and the next time we hear from you it?s a huge success story and you invite us all out for a barbeque at your new mansion in the desert. But even if the worst does happen, the work you’ve done should not go to waste. You’ll have the best market intel on Phoenix of anyone out there, and if the plan is good enough the funds will find it.

Regardless of what happens with the rich guys, once you’re out in the marketplace, things will start to happen for YOU that wouldn’t have happened had you not put yourself in the position to learn the business. That’s when you learn to develop Plan B… and C, and D. Some of my best deals have come from a Plan C or D that I would never have thought of until I HAD to, because nothing else worked.

And that?s the best payoff of all? hitting the sweet spot? just the right combination of hard work, preparation and opportunity… which some people mistakenly call luck.

Best of Success,


Re: HELP w/ comm. invest, 100% financial backing! - Posted by Casper

Posted by Casper on August 04, 2003 at 16:42:35:


Why dont you form a Limited Liability Company with them. The Company will engage in real estate investmet. You can remain the managing member of the llC, while they remain ordinary members. You may retain 20% ownwer ship, while the retain 40% each. All profits and loses will come to the LLC each year, and you and them will share the profits and losses in accordance to the proportion of your ownership. In addition to your 20%, you could charge a salary for the day to day management of the LLC.

What you are really trying to do is to set up a hedge fund which deals in real estate. You will get a salary as a manager of the fund, and also a percentage of the profit or loss (20% but maybe not likely).

Look for business palns of other real estate companies. You may also want to look at the propectus of a Real Estate Investment Trust (REIT) that will also give you some ideas.

As soon as you have agreed on structure, percentages etc, then get in touch with a Phoenix RE Broker. Tell him/ her your buying parameters. 100 Unit building, of a certain age, within a certain price range, with certain Cap Rate and NOI. Also start scouting for Property management firms in Phoenix ( I suppose you have no experience in this so hire an expert). They will probably know buildings in Phoenix that meet your buying criteria. Thus you could even make an offer for a building that is not really on sale.

As for deciding whether a particular building is a good buy, you can always seek the help of an acqusition consultant (like Ray Alcorn). You will need to consider location, condition of building, age , Cap Rate etc.

You will need an atty in Phoenix that is familiar with large commercial transactions. The property management firms will introduce you to the attorneys they work with.

Then you need to be intellectually equiped for the venture at hand. Quick, go to Order books on LLC’s, Joint ventures, Real estate partnerships, How to buy and sell apartment buildings, How to invest in rental properties etc.

But I think the most important thing you need now is to read the business plan/ or operating agreement/ or prospectus/ of a large real estate investment company/ partnership. Such a document will contain ALL the issues that you need to address. Afterall you are about to embark on a similar venture.

I am in New York. I am available should you and these investors decide to do some business in NY, NJ, CT or perhaps to just give another guy a chance.

Good luck and I hope everything works out for you.


Re: HELP w/ comm. invest, 100% financial backing! - Posted by Jay (NY)

Posted by Jay (NY) on August 03, 2003 at 11:29:50:

I think you should get in touch with an experienced commercial real estate broker in Phoenix. When you find one you feel comfortable with, ask him to connect you with property management companies, attornies, etc. Talk to at least 2 or 3 brokers before you decide who you wanna deal with.

Good luck :slight_smile: