Why Using Private Money Is Better Than Partnering!

Is Using Aegis JV Partnership Funds a Good Deal?

Real estate investing can be very easy when you have money lined up to invest with. Individuals with the aptitude to find and analyze deals and use private money stand to gain huge profits as they flip houses strategically.

The Questions you have to ask yourself are,

  • What is the deal’s value in comparison to the funds?
  • What amount of profit can I make?
  • How do you fulfill investing obligations proceeding the deal?
  • How much is the funding really worth?

All of these questions deserve relevant answers that include identifying pitfalls of venture capital partnering, advantages of using private money from investors and while increasing profits while reducing risks.

Loss of Profits with Partners

Venture capitalists firms expect high fees or returns or both on your deals.  By offering such high fees, you are placing your investment in a tight spot to squeeze profits. In the end, you begin to lose profits as the loan goes over a very short period of time ie. (90 days).  Venture capital firms expect profits whether you receive a return on your work or not.

The numbers speak volumes in relation to funding using a combination of the following:

Bank Loans            8-12% (depends on credit score) Down payment/monthly payments

Hard Money Lenders    5-10-15% and points of 2 to 3% and monthly payments then repay in 90 days or pay more points.

When borrowing money for renovations, the borrower typically has to start the renovation process with their own money and then the lender will lend the money in increments as the renovation progresses.

Private Money     6-10%, no points/flexible terms

Property – $98,000 + Renovations – $5,000 = $103,000 (Total Estimated Cost)

Bank Loan – $110,300 at 8.7% over 30 years-fixed = $119,896.10 (true value)

The monthly payment for your bank loan equals $806.00. To some, this is an amazing opportunity due to their good credit, but what about the potential advantages of borrowing from private investors? The bank loan’s amount may be cut in half if used correctly by issuing an opportunity to three stockholders a private lender  in a property. In fact, what happens when you have bad credit? Your numbers are slightly different:

Credit Cards           17-18%

Bank Loans             10-12%  Down payment/monthly payments

Venture Capitalist     10-15% and points of 2 to 3% and monthly payments then repay in 90 days or pay more points.  When borrowing money for renovations, the borrower typically has to start the renovation process with their own money and then the lender will lend the money in increments as the renovation progresses.

Private Money     6-10%, no points/flexible terms

Example:

Property – $98,000 + Renovations – $5,000 = $103,000 (TEC)

Bank Loan – $110,300 at 11% over 30 years-fixed = $122,433 (TV)

If this is your first or 50th investment opportunity, it may suit your needs to find private lending partners within your professional network to finance a deal before it is too late.  Stretch your knowledge base by reaching out to individuals whom you are comfortable working with on financing your deals. Nontraditional funding opportunities may be a call away or a meeting from you acquiring your first property.

Nontraditional Funding Opportunities

Private moneylenders are there to help you in the midst of trouble. They are understanding, expect little in return, and are ready to go through the hard times.  Private money opportunities exists everywhere in your reach; the access to investors or everyday people willing to put their money in your hands is the beginning of an evolving partnership with little strings. All you have to do is make a plan in how to attract private lenders, also known as angel investors whom are willing to give you the leading role while providing funds for the real estate venture.

Finding Private Money

Real estate investors lurk are available within real estate investor organizations, doctors, lawyers, IT professionals, and other professionals with slow investment plans providing little return. Your introduction to passive real estate investing is only an option, but if you present it rightcorrectly – it can become their solution to building wealth. Work your circle of influence in a strategic manner – start with family and friends then branch out into investor organizations within your city. You will notice that a number of candidates exists outside of your comfort zone. Some of the other people available are friends of friends, your personal banker, consultants, colleagues and anyone with a retirement plan.  Always ask for referrals!

Creative Borrowing Techniques

Certain private moneylenders will face cancellation or early withdrawal fees from using their IRA and 401K. Consider offering an incentive for this fee by paying their withdrawal fees with their first returns on the property. This presents a sense of gratitude and commitment to their investment.  In addition, offer to pay their annual maintenance fee on an IRA for the money they lend you.  On

$1 million dollars the fee is less than $2,000.  Setup your own self-directed IRA with a company like Equity Trust so you are familiar with the process and you can say with confidence that your IRA is self-directed.  Working with Equity Trust Company will give you huge credibility.

Equal Interest Exchanges

Organize the investing process to help improve success. For instance, if investors request a 5% return on their $20,000 loan offer them 2.5% of ownership in the property. The $20,000 of their loan compensates the purchase and allows potential expansion of their funds in other areas in the deal. Split the interest of the loan in half to give investors a say in the upgrades or improvements of the home overtime. This can develop into a profitable partnership if done correctly.

Develop a SWOT Analysis

What does an investor want to know? How fast will you be able to make money off the property. Add a SWOT analysis in your presentation (or discussion) of a real estate deal. Establishing confidence in investors means describing numbers, level of success, and the steps of how their funding will help increase profits of a property. Contrary to popular belief, numbers speak. Numbers provide confidence and a peace of mind for investors. It is your responsibility to establish a strong network of investors, purchasers, and increase likelihood of success by automating your real estate investing practices.

Work The Numbers

A friend offers to loan $20,000 towards a $110,000 purchase. Their equity in the home is approximately 5.5%. You ask the friend to pay 3% on the loan in exchange for complete control over the project. Now, your total expense to the friend is $20,600 (only $600) for acquiring the loan. You offer to pay a monthly payment of $115 per month over the next 15 years. To your investor, this is a continuous stream of income just for giving the starting money in the deal. To you, this is an amazing opportunity to own your own property to flip.

Now, let’s say you renovate and sell the property for $136,000. The profit is $26,000, which covers the first loan to your friend. Secondly, you decide to pay larger sums in monthly payments in order to give your friend their loan back in 10 years. You now have the power to pay the full loan back with a remaining $5,400 profit towards another property or keep the profits to use as monthly payments for 10 years. At this point of private money, you are in control of everything.

Compare to Venture Capital Firms.

When comparing Private Money to a company such as “Aegis Equity Capital Partner Program”  the differences are vast and in favor of Private Money.  The power of Private Money is most obvious when you’re able to not only acquire the property, but you have the capital available to do the renovation if one is needed.  By utilizing Private Money you will almost always receive a check at closing which is tax-deferred capital available for you to handle marketing expenses, holding costs and money to pay yourself as you run your business.  In addition, you have the opportunity to be very creative with the rates and terms for your private lenders.  You can pay them 6-9% and negotiate payment terms that are monthly, quarterly, semi-annually or annually.  Don’t you love it?  You are in control.

Example:  On a $200,000 ARV (after repaired value)

Private Lender @ 80% LTV = $160,000 loaned

Acquisition Cost    –  $114,000

Renovation Cost     –  $ 28,000

Cash at Closing = $ 18,000 (to handle marketing expenses, holding costs and to pay yourself

2-5 year term with no prepayment penalty with Private Lender

Pay Private Lender 8% APR Fixed on $160,000 = $12,800 divided by 12 months=$1,067….. Keep in rental portfolio and rent for $1,275/month while you earn $200/month cash flow and are in a position to ultimately OWNER FINANCE for $210,000 and turn the renter into a buyer.  Request a $20,000 down payment and owner finance for 36 months and have them refinance with a bank.

Or sell when renovation is completed for $195,000 and earn another $35,000.

First and foremost with Aegis the fees paid to them are outrageous.  The whole idea of investing in real estate is to be in control, have fun and make money. The only people in control, having fun and making money with the Aegis program is Aegis.  They are in the “Driver’s Seat”, not you the borrower.  They set the terms and the rates and you pay the fees and accommodate them.

Special Note:  When borrowing money very seldom should you borrow for the short term 30-90-120 days.  Real estate renovations and marketing take time and before you know it, you’ll burn through the short window of time.  Partnering with Aegis or anyone to ultimately give them 10-20% of the profit or $8,000-$18,000 on the deal, whichever is greater and for 95+ days of access to capital is not a good business strategy.

The ideal time frame to borrow money with private lenders is 12-24 months with no prepayment penalty.  Finish one project and ask the Private Lender permission to keep paying them a great rate of return on their passive investment by moving their money to another property and restart the process.

The two most powerful words in Real Estate are “PRIVATE MONEY”.

Look at what one of the top Realtors has to say in response to The Aegis Equity Joint Venture that Nathan Jurewicz and Chris McGlaughlin promote:

Thank you.

Duncan Wierman and Gary Brevko

2 Comments

  1. Cynthia Di Rocco

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