Most real estate investors that own commercial properties raise money from others, usually known as “passive investors”. For example, if the purchase price of a property is $1,000,000.00, and let’s says the loan from a first-lien lender is 75% or $750,000.00. You will need an additional $250,000.00 of cash to close the deal. Plus, additional cash for other costs as lender fees, inspections, appraisal and reserves. This additional cash is the amount that most commercial investors raise from private, passive investors.
By limiting the amount of cash out of your pocket and bringing most of the cash from investors, is how you, as a Sponsor/Organizer, can create cash flow and build significant net worth; by using leverage.
The deal of course should be structured so that your investors receive a solid “market rate of return” on their invested funds, usually more than what they might earn in the stock market. While you, as the sponsor, have a tremendous opportunity to far exceed what might be considered a “market rate of return” because of the leverage factor that you are applying.
All of this is clearly disclosed to all parties involved in the transaction and clearly shown in a chart form.
Omni Investor Funding can relate to you how our clients raise millions of dollars from passive investors to acquire the necessary cash to purchase properties. Raising say from $1,000,000,00.00 to $3,000,000.00 from passive investors for the cash necessary, is the norm for most investors on smaller commercial transactions.
It is important to understand that raising money from others for investment purposes is highly regulated by the Securities and Exchange Commission. Therefore, if you plan to raise money, there is a very specific set of guidelines that you must follow.
Be aware that there are regulations regarding having initial conversations with potential passive investors when talking with them about investing in your deal.
Also, be aware that before you accept any money from investors, it must be accompanied by a Private Placement Memorandum. The PPM discloses the risks and potential returns that your investors might receive as a result of investing in your project.
Never promise a certain return to an investor. All the details of any investment are disclosed in the PPM.
Omni Investor Funding does not offer legal advice. Only an attorney that practices SEC law can give you legal advice. You should consult with an SEC attorney to prepare your PPM. We can refer you to a top attorney that structures our PPMs for our firm.
To learn more, we suggest that you first research the difference between a SOPHISTICATED INVESTOR AND ACCREDITED INVESTOR.
We have a very simple, one-page form prepared by an SEC attorney that we will be glad to share with you that you should first give to any potential investor to fill out to determine if they are sophisticated or accredited before having a detailed discussion about your deal. You then simply drop the from in your file to show that you are following SEC guidelines. This will allow you to begin to have a substantive discussion with your potential investor and will be the first step in the right direction to raising money and being in compliance with SEC guidelines.
The plan of action for a successful raise is:
PATIENCE!
PERSISTENCE!
MOTIVATION!
SURROUND YOURSELF WITH OTHERS WITH THE EXPERIENCE WHO ARE WILLING TO SHARE THEIR KNOWLEDGE!
Let us know how we can help further.
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