Private Money Partnering

How Much Does Money Cost?

Chapter F (continued)

Some Cost Options To Consider
Money Borrowing Philosophies

You know that you can do the deal if you can get the cost of funds to be within a certain dollar amount. Figure out how to do that. Figure out where to go to get the money to make it work, and stretch yourself.

Once I was selling a house “as-is” for $18,850. The lady who was going to buy it, fix it, and live in it had arranged for a new loan to buy the property. At the closing table she learned that in addition to the normal closing costs, there were very high origination fees and other costs of money totaling $3,400 which would have meant she would be borrowing almost $24,000. Since her credit was good, she walked from the closing table. She knew that she could shop around and borrow the money at lower costs, which she did. Be careful that the cost of funds on what you borrow makes sense for the deal.

Some Cost Options to Consider

♦ Secure the deal with expensive money if you have to, and then replace those funds with cheaper, long-term money
♦ Deal in component parts, separately for the money and for the partners, and remember that each component can be replaced
♦ Get a list of potential prospects from your accountant or financial partner
♦ Get a list of other “friendly accountants” for prospects
♦ Leave all options open and no stones unturned
♦ Ask for advice from others to see if you've considered all options

Money Borrowing Philosophies

Philosophies about borrowing money may differ. Ron Le Grand says that it’s not how much the money costs, it’s how fast you can get it that matters. From another point of view, John Schaub says you should only borrow money to make GREAT deals, with the cost being less than what a bank would charge to make an investor loan, but perhaps at the same rate an investor could realize by investing in tax-free bonds. What’s that cost? Pretty low. In other words, there is a range. Depending on who your audience is when you’re approaching someone about money, whatever is more that what they are used to is going to be attractive. It depends on where you are in your investing career and who you are comfortable talking to. Are you hoping to have repeat business? Sometimes fast is absolutely the best thing because it can make a deal happen. If you have the opportunity to have a little bit more time to structure the deal so you can get money at a cheaper rate, more power to you!

A couple of words to the wise. First, remember when you’re analyzing a deal and if you don't believe you can handle it your self financially, somebody else probably can. Just let other people know about it, and collect a referral fee or sell your contract. A piece of something is better than losing the whole thing. A piece is always better than nothing.

Secondly, nothing is too big. There’s always somebody available who can help, but you've go to ask. You get to express what your needs are to others and maybe they know somebody who can help. Your local real estate association probably has a number of people who can do something to help put a deal together, or they know others who can. Remember to open your mouth and ask.

Joint Venture Real Estate Relationships - Chapter G