Dan in CA
10-01-2006, 11:32 PM
After being out of the foreclosure game since the mid 90's, I'm going to get back in full-force. I'd like some feedback as to my action plan. I intend only to buy at the auctions, not "pre-foreclosure" like most of the other buyers. Too many "investors" are chasing down the homeowners and trying to cut deals, which aren't as easy to do now with the way the law works here in California. I'm going after deals with large second deeds of trusts that will get wiped out at sale when the first DOT forecloses. That will leave enough room to allow for minor fix-ups and turning the property for a small profit (looking for volume, not big kills).
However, I don't like having partners (it worked great to get me where I am, but if you can go forward on your own, then why not). Sounds great, but my resources allow for only so many deals ($200,000 - $500,000 per deal here in California). I intend to raise funds through private individuals and secure their investment with a deed of trust in first position. Example: purchase at auction for $185,000 with a property value of $250,000. Put $15,000 into property (which includes items such as insurance and taxes) and expect a hold period of four to six months at the most. Sell for $245,000 and pay $10,000 in commissions and closing (I'll list it myself and pay agents 3% to bring in the buyer). $235,000 net proceeds less $200,000 investment equals $35,000. Five months carrying costs is $10,000, so the net profit is $25,000. I'm looking to do two or three acquisitions per month.
I am forming an LLC in the very near future to raise $2,500,000, which will be used as the capital for the venture. The typical investor will be a business owner, doctor or wealthy individual who may be investing from their self-directed IRA or other investment vehicle. I anticipate a pay rate of 12% (which is why the above example has $10,000 carrying costs - five months on $200,000 / 1% per month). This is an above market pay rate, but then again the investors are not sharing in the net proceeds; just investing for the attractive yield.
Anyone see any holes in this program? I'm an experienced investor who has done over $500 million in property acquisitions (as an employee of an investment company, as an advisor and for my own account), so I know how to source deals. Also, I'm not new to the foreclosure game and know how to mitigate the risks.
Your comments and suggestions are most appreciated. I'm going to my attorneys in the next two weeks to put together the Private Placement Memorandum and would value additional input.
Thank You.
Dan in California
However, I don't like having partners (it worked great to get me where I am, but if you can go forward on your own, then why not). Sounds great, but my resources allow for only so many deals ($200,000 - $500,000 per deal here in California). I intend to raise funds through private individuals and secure their investment with a deed of trust in first position. Example: purchase at auction for $185,000 with a property value of $250,000. Put $15,000 into property (which includes items such as insurance and taxes) and expect a hold period of four to six months at the most. Sell for $245,000 and pay $10,000 in commissions and closing (I'll list it myself and pay agents 3% to bring in the buyer). $235,000 net proceeds less $200,000 investment equals $35,000. Five months carrying costs is $10,000, so the net profit is $25,000. I'm looking to do two or three acquisitions per month.
I am forming an LLC in the very near future to raise $2,500,000, which will be used as the capital for the venture. The typical investor will be a business owner, doctor or wealthy individual who may be investing from their self-directed IRA or other investment vehicle. I anticipate a pay rate of 12% (which is why the above example has $10,000 carrying costs - five months on $200,000 / 1% per month). This is an above market pay rate, but then again the investors are not sharing in the net proceeds; just investing for the attractive yield.
Anyone see any holes in this program? I'm an experienced investor who has done over $500 million in property acquisitions (as an employee of an investment company, as an advisor and for my own account), so I know how to source deals. Also, I'm not new to the foreclosure game and know how to mitigate the risks.
Your comments and suggestions are most appreciated. I'm going to my attorneys in the next two weeks to put together the Private Placement Memorandum and would value additional input.
Thank You.
Dan in California