How to handle pool of individual investors - Posted by Scott (ATL)

Posted by Scott (ATL) on February 23, 2000 at 23:22:43:

I probably would deal on a project by project basis but my issue is that I’ll need money to buy the property (Could do conventional but I have one investor that could pay cash for anything up to $125). Depending on my fix up costs I’ll need to gather additional funds above the purchase price. With the aid of 2 or 3 investors I can probably get it.

I guess I could just offer each of the “fix-up” investors promissory notes and leave it at that. The interest rate would probably be their incentive to take the “risk” rather than having collateral?

Any other thoughts?

How to handle pool of individual investors - Posted by Scott (ATL)

Posted by Scott (ATL) on February 22, 2000 at 11:17:12:

I’m not sure how many people saw an earlier post of mine but our first property (Closed Jan 3) now has a contract (Never went into MLS listing…I hate having to pay a commission but our realtor certainly did his job and deserves every penny for getting us the price we wanted within 1 month of purchase).

Anyway, we are focusing on rehabbing properties at the moment and this one is going to give us a nice profit. We were going to close by the 29 but we couldn’t get a few things done in time. Since it is FHA we’ve got to make the changes/upgrades before closing. Anyway, we’ll close on March 15th instead.

Now for my question…Since I have a number of colleagues and friends that know that we’re doing good work here and making money they are interested in investing some of their own money with us. Now, our current investor (one individual) can only provide so much capital and I would like to pool some other money to get us all the money we need for future purchases and fix ups. The possible investors I have would only be able to put in about $1,000 to $50,000 each. Now if I want to maximize my pool of cash what are some ways to provide me with what I need (cash) and give the investor something?

I know I could just write promissory notes. For smaller amounts this might be the best. No collateral just an IOU with a fixed interest rate. If I do this, what interest rate is fair? For this 1st deal we were taken to the cleaners (Flat 15% for his money in 6 months) but we needed cash within 24 hours and we didn?t have a track record. Our main investor knows he won?t get the same deal again.

For those investors that want to put higher amounts in 10K or more maybe I could give a second on a property but if I have a ?main? investor and 2 or 3 smaller investors I can?t imagine that a ?4th mortgage? is going to be too appealing to the last investor.

We are buying the houses under an LLC so we don?t have company shares to sell?Then again even if it was a C corp I?m not sure I would want to sell shares to raise the capital.

Am I asking the right question here? I?m just not sure how I can get money from everyone without having to pay a fortune but also give them a solid reason to ?give? me the money. Any thoughts are greatly appreciated! Obviously, this is a good “problem” to have!


Re: How to handle pool of individual investors - Posted by David Alexander

Posted by David Alexander on February 22, 2000 at 23:20:05:

15% Investor Money, with only an IOU and your complaining. I have gotten funds anywhere from 7% simple interest (usually the property owners in this case) to as much as 30% (aggressive Investors) and still made money. I would protect that Investor like gold. The biggest piece of advice I can offer is have a contingency plan in the event the deal doesnt go down like it was supposed to. And make sure they arent living off the funds they’re giving you to invest.

You could also assign the property to a trust and split the beneficial interest. In some states you can split the mortgage where everyone is in the same position just equally with regards to their portion, be careful of securities laws.

If you can as I was taught by John Behle, One Deal, One Investor.

You can also set up an insurnace policy so that in the event something catastrophic happens to you it’ll pay off the notes.

David Alexander

Re: How to handle pool of individual investors - Posted by Glenn OH

Posted by Glenn OH on February 22, 2000 at 19:44:11:

I am considering Limited Partnerships for this purpose, with the LLC as the general partner. Liability is limited to amount of investment, partners get a share of any profits, without any liability beyond their investment. LLC as general partner can take a management fee, etc.
Also, consider having your investors use their Roth IRAs - TAX FREE INCOME! - plus better retirements.

Re: How to handle pool of individual investors - Posted by Warner(ATL)

Posted by Warner(ATL) on February 22, 2000 at 18:59:30:

Hey Scott,

Although, I do not have experience dealing with “pools” of investors, My thought is to have your deals funded on a per project basis. This would greatly ease the accounting management and each investor would know exactly where they stand.

Re: How to handle pool of individual investors - Posted by Scott (ATL)

Posted by Scott (ATL) on February 23, 2000 at 23:17:31:

30%! Thanks for making me feel better!! I agree that I need to treat all of them like gold.

Your trust idea is interesting.