Reality check... - Posted by Aaron-TX

Posted by Aaron-TX on December 24, 2002 at 22:36:17:

I agree…if it wasn’t for the fact we own several other properties, I would NOT attempt to get an apartment.

The plus side of things on this deal is that there is currently a very competent property management company running the place…which is surprising (the competent part).

Reality check… - Posted by Aaron-TX

Posted by Aaron-TX on December 21, 2002 at 22:13:24:

…while in the process of buying a 30 unit with some partners, I came up with an idea that I’m not sure will work or not.

With my current deal, we’re splitting ownership up evenly, except that I’m only putting 1/2 the downpayment monies as the other two, basically my sweat equity for putting the deal together. So instead of me putting in my 40 grand, I’m only putting in 20.

My idea involves deal making. Putting together apartment deals where I retain a goodly portion of the ownership in the property in exchange for putting the deal together. Maybe 10 people contributing 10 to 15K each totalling up to 75% ownership with me getting the last 25% but also not putting in much, if any, money.

Is there anyone doing this or can it even be done?

Re: Reality check… - Posted by JD

Posted by JD on December 24, 2002 at 20:00:33:

This is what George W. Bush did when he ‘bought’ the Texas Rangers. Of course he had an edge over most people.

Re: Reality check… - Posted by Steve D

Posted by Steve D on December 23, 2002 at 08:12:36:

Deals like that happen all the time in virtually every industry, not just real estate… within real estate you can also set up a property management company, and you’d basically put the deals together and manage the properties, and use “silent investors” as your funding source.

If it’s small enough, you just do a “friends and family” type deal, partnering with people you already know.

If/when you want to go a bit bigger, advertise for investors etc., you’ll need to pull together a PPM (Private Placement Memorandum), and because you are selling securities, you need a good attorney because you don’t want to get in trouble with the SEC - if you are going after enough investors, or have investors in a certain number of states (over 30 I think), then you have to register your offering with the SEC for sure (I’m not an attorney, but I do have limited experience of rasing capital for private ventures in multiple industries).

Take it even further, and you get a publically listed REIT set up, then you have to deal with the SEC on a very regular basis.

So in answer to your question, yes it can being done, and it can and is being done from small deals based around one property, to REITs running from millions to perhaps even billions of dollars holdng multiple properties.

However this is a fundamental change in business strategy - You are now putting security based deals together around real-estate, your primary business becomes selling paper investments based around real estate, as opposed to your primary product being Real Estate.

Re: Reality check… - Posted by Aaron-TX

Posted by Aaron-TX on December 23, 2002 at 09:39:04:

Wow, thanks for all the info. It amazes me how much things change when you start picking cards from the “big deal” stack.

For now, I’m going to continue working on my 30 unit deal with my acquaintence investors, but also start soaking up all this new knowledge.

Thanks for the info, you’re too kind!

Re: Reality check… - Posted by Steve O

Posted by Steve O on December 23, 2002 at 12:36:05:

Another item to keep in mind is that you need to show some prior successes.

There are a lot of people that venture into the apartment market with eyes half open. I look for these people as sellers. Make sure that you do your homework on this first deal to aid in the likelyhood of success.

It is also difficult to get people to hand over their hard earned money for a project without some confidence that the investment will perform.

I have done 10 apartment purchases which have had great success. I have also put partnerships together for much less than the amount you are mentioning and still see a fair amount of reluctance for handing money over.

My point… Keep a strong focus on this first one as you stated earlier.