Posted by David H on February 28, 2002 at 18:32:30:
It’s not specific to RE, but www.businessfinance.com has papers on how to approach funding requests. It would be a place to start.
Investor proposal template help, please? - Posted by Enrique
Posted by Enrique on February 28, 2002 at 18:18:02:
I have run across a property that I am very interested in. The problem is that my money is tied up right now in two other projects. An attorney friend of mine mentioned that he might have some associates who would be interested. He suggested that I start by drawing up a proposal. I guess my question is, what information should be included? What does this kind of proposal look like? As my investment circle grows, I would really like to learn how to entice other investors. Any suggestions would be great. Thanks in advance.
Enrique
My Formula for 1-4 Investor proposal template - Posted by Mitchell
Posted by Mitchell on March 02, 2002 at 12:04:50:
Below are a string of posts. I apologize for not having
recast them into an intelligible message. These are posts to several other forums, explaining The Formula. The form is copywrited. You may use The Formula form
when personally trying to evaluate a potential purchase for your own portfolio. No teacher for hire is to use the Formula form.
Let me know what you think of the Formula and contact me with questions. 518-439-6100.
Mitchell
Easy access to the MLS is invaluable. You do not need 10% DP. I only put down $1. If you put more down, then you are not talking to motivated sellers. I spoke today with a real estate broker who wants to work with me. I told her that for any property that had little equity, I would only take title Subject to the current inancing; meaning no cash outlay. And,for a purchase, I do not want to even discuss any property with less than 60% LTV. Always, always, always make your money going
into the deal. Only talk with motivated sellers. Why
bother with anyone else?
This is the strategic conversation and formula that I
use to see if a property is a good investment. It is
a great negotiating tool. I would be grateful for some
feedback.
I call the expired listings just after they have
expired. Usually I have a telephone conversation to qualify the seller for price and motivation.
First, I ask if the property is still for sale or if
they have relisted. I only work with unlisted roperties, to save the listing fee. If they relisted, I leave my phone number and wish them luck.
Next, I tell the seller that “I am a real estate
investor and seek to make a profit. Is that OK?” Of course they always say “yes”.
I ask the seller to describe the property and its condition, in detail. It is surprising how honest they feel they need to be when you ask a specific question,
like: “How many dings are there in the siding?”; “How quickly must I replace the windows”; “How many cracks are there in the cement pathway or foundation?”; “How many roof shingles are curled up?”; “When was the brick last pointed up?”, etc. By asking questions in this manner, they think that they can not fool you and you gain credibility for later on, when you ask him to hold paper for his profit.
Then, I say that I am interested in renting out the house and ask what the rent should be for that house/apartment. I always use his numbers, unless they are way to high or low. If I say his number is too low, I gain credibility.
Then, starting with his rent number, I go down the
list of costs starting with the TAXES. When I get to
Profit, I ask, “Of the $850/month rent that you say I
will get for this house, what amount of profit do
you think would be fair for putting up with tenants,
doing repairs and taking a business risk?” They always say at least $100 per month." Then subtracting out the
costs, we both see what is left over from the $850. potential rent. This is the amount available to pay the owner his profit, on a monthly basis. Sellers do not like this low amount but they can not argue with the number because you arrived at it so logically; and you used his rent and profit numbers.
By first calculating the housing costs, including my
profit, I back into the amount that I can offer the
seller. I have never had a bad conversation with a
seller because they understand the process.
If the house needs more than PP&C, my acronym for
Paint, Patch and Carpet, meaning a cosmetic fixup, then I calculate the Rehab amount and deduct it from the
price that I can offer.
Michael:
Thank you for asking me to flush out “The Formula”.
Properties being held for any amount of time require cash flow. Real estate investing is all about cash flow. Do you have enough to pay for all the bills at the time that they are due. If you must borrow, you
must have the resources to pay back, and on time. Therefore, since banks do not care for your excuses, you must always assume that the worst will
happen and be prepared for it.
Hidden, unknown or uncontrollable costs are the
single biggest deficit we face in real estate investing. What is the cost to you of an incompetent attorney? How do you make up for a lost good impression because that banker did not come through and the seller will no loner give you that zero interest 2nd mortgage? What is the cost to you to have more stress added into your life because of REI? How many lost hours have you had, waiting for a tradesman to arrive or for a potential tenant to show; and how do you account for it? What expense account do you debit? All these things you and I have absolutely no control over.
I can try to get good contractors to give me good estimates but I have learned to double the amounts on small rehabs and to add at least twenty per cent on rehabs of $10000 and more. I have learned to confirm all appointments before traveling to a showing, but very often people still do not show up. I have gone through at least ten attorneys and not one would I consider as worthy. Etc., Etc., Etc.!
If I converted all these items, and others that I could think of, into hours, and gave each a charge per hour, I dare say that tens of thousands of dollars have been lost over items that we did not know about or were not in our control. There is such a thing as “opportunity
cost”. The opportunity to do other things that could have been profitable, were taken away from me and you,
and the cost is very high indeed.
In order to avoid as much pain as possible, I do what I can to control as much of the situation as I can. Hence, the following purchase formula takes into account many real world costs that most investors ignore, to their detriment. If any investor goes into a
transaction unprepared, if he figures expenses “by the seat of his pants” method, then he deserves what he gets.
There is nothing magical about my formula. Ask any
commercial banker how he determines a value or a cash flow. See if he has a formula? It is cmplicated! Do you want your banker to lend your money out “by the seat of his pants” or do you want him to have criteria; and should not that criteria be as complete as possible?
In my conversations, I always start by trying to find the sellers motivations. If the house has little equity to give away, then The Formula does not count for much. You may find it worthwhile to do an option. Some gurus like “subject to” deals in this situation, but I have
yet to be convinced. However, when there is equity, but without motivation to sell low, how do you get a lower price or better terms? This formula clarifies for the seller, most of the costs I, the landlord will face; costs, and situations that cost, which they had no idea existed.
In fact, most investors are not cognizant of their costs. This is born out by the fact that there are so many “don’t wanter” landlords. This formula works great on them because they now see where they went wrong listening to ignorant real estate agents who sold them the building using only PITI as the expense base. Well, they were right about one thing, it is just the base.
There are double the expenses to PITI, which every real
estate agent will deny, because they are trained that way.
By first calculating the housing costs, including my profit, I back into the amount that I can offer the seller. I have never had a bad conversation with a seller because I talk through the process and the expenses.
The Formula — I have attached a Word Doc of the form that I use. If it does not attach to this email then request it from me directly and I will send it to you. mgoldst2@nycap.rr.com
The acronym is: P,I,T,I,M,M,M,B,O,U,R,A,V,I,P
I write this vertically, down the left side of the
paper. The second column has the full word, the third column has the range of percentages of Gross Potential Rent (GPR) used, the forth column has the calculation used for that item, the fifth column has the Monthly percentage amounts for that property, the fifth and sixth columns have the appropriate monthly and yearly
dollar amounts for the cost of that item. I write the Monthly GPR and Yearly GPR at the top, as MGPR and YGPR respectively.
All calculations are based on a monthly percentage of Yearly Gross Potential Rent - YGPR. Make sure to reduce all calculations to monthly amounts because you are comparing to a monthly rental.
P = Principle =