Re: Meeting Park Owner – Need Game Plan - Posted by osupsycho(OK)

Posted by osupsycho(OK) on December 08, 2005 at 11:20:37:

Jeff I am going to take a shot at this by putting forth something that has been rolling around in my head for awhile. It is just an idea so don’t rip me to much and I would love everyones input on this potential plan.

Here is a breakdown of how I see your situation so that everyone understands where I get the plan (note some assumptions, rounding and approximations used).

You need $250,000 to be able to purchase the 25 homes from the owner at $10,000 a piece.

Now for down payments on this note I am going to present it two ways to show the possible variances.

You then are able to sell each for $25,000 on standard notes of $550 month payment for 5 years with no down payment (Option A), or $500 a month with a down of $2500 on each (Option B).

Option A- you get 10% down on each home or $2500 which equates to a total cash in pocket of $62,500. If you are able to sell before you buy (which is something that may be needed to make this deal be pulled off but from the sound of things he may be ok with this) then this money could be put toward the overal cost of $250k. That would then require you to come up with the remaining $187,500. The total monthly collected payments on this option would be $12,500 (25 payments of $500).

Option B- no down payment and the total monthly collected payments would be $13,750 (25 payments of $550) but the overall cost remains $250k.

Now for the meat of the idea. In this plan you have 25 notes that bring in either $12,500 or $13,750 monthly. I put forth the idea of using this pool of notes as collateral to attract 10 private investors with the remaining money to cover the overall cost. This pool thus consists of $625,000 worth of notes at the “industry standard” 12.5% for 60 months with a monthly income at or exceeding $12,500. Here is the package I would put forth for the investors:

With Option A- you need $187,500 so each investor would need to put up $18,750. For this they will receive a very attractive interest rate of 17.89% (put at this strange # to make payment an even #) which makes for a monthly payment of $475 over the same period as the notes or 5 years. At the end of the 5 years this investor will have received a total of $28,500 (a little salesmanship there). So you will have to pay out a total of $4750 a month to these ten investors and that leaves you with the remaining $7750 to pocket for servicing these notes, and (HERES THE KEY TO MAKE THIS WORK) “FULL RECOURSE”. They have nothing to worry about except cashing that nice check from you (or your company) every month (more salesmanship).

With Option B it works out that each of the ten investors pays in $25,000 and gets a payment of $550 a month so you get to keep $8250 for yourself. Again the key is offering FULL RECOURSE.

The other thing that makes this easier is that the investors are not putting their money up against one note, they are not dependent on any one (or two or even three) notes having problems. It is a pool which allows you to handle the inevitable payment problems that will occur while still being able to make your payments to them easily.

One potential pitfall of this scenario is the tax situation (which has been left out above) that would occur from the selling of these homes and I am not sure how to overcome this problem but one option would be that this whole deal is done through a business entity (good idea anyway) and that could alleviate, or at least lessen, a lot of the tax problems. You could also collect more money from the investors to cover the cost of taxes. Even at a worst case scenario of having to pay out 30% in taxes on the profits you are looking at tax bill of $112,500 (profits of $15,000 for each home at 30% = $4500 x 25) and if passed on to the investors it would raise there payments from $475 to $760 a month or a total of $7600 which still leaves $4900 for you (done with option A which is the worse of the two incomes).

Sorry this is so long but it is something that I am trying to formulate as a plan for my future and it sounds like your position is one that could work out with something like this. You can substitute a lot of variables in like more investors with less money each or some other things but the good news is that the numbers are good enough to allow for some real flexibility.

So everyone there it is, my brainchild (with lots of inspiration from posts on this site) and I am ready for critiques, criticisms, or why it just won’t work so unload on me.