How to think out of the box regarding Equity
How to think out of the box regarding Equity
1. Land Owners. This has been a traditional source of equity for land acquisition and development. The land owner put the land into the deal as equity and the builder puts in the expertise for the land planning, entitlement, and development. Right now finished lots in many markets aren’t worth the cost of development so very few of these deals will be done in the near future but as the market strengthen this is a very good equity source to help your growth.
2. Land developer. There are a lot of land developers that have been left with finished lots being abandoned by builders. The land developers need to deliver lots to satisfy their investors and lenders. They need a builder to build homes so they can dispose of lots. The developer will subordinate the land to a construction loan, joint venture with the builder, or hire the builder for a fee to build the houses. We have a number of our builders involved in these types of deals right now.
3. Financial Institutions. There are work out opportunities to help banks liquidate real estate owned (REO) properties they have due to bankruptcies, and foreclosures. These projects will have finished lots, and undeveloped property. Banks will sell these assets at very favorable prices, terms, and conditions or hire you for a fee to manage the asset through completion.
4. Wealthy Individuals. Many Wealthy Individuals will fund land acquisition, pre-leased office or retail, etc.
5. Larger Companies. Builders that have joint ventured with large companies such as oil companies, railroads, manufacturers, retailers, etc. Generally they have idle land and facilities that they would like to liquidate. The first project can lead to a long term relationship.
6. Investment Funds. There are a number of individual investment funds which typically have a manager and an investment strategy. Generally you are going to locate these funds through networking.
7. Foreign Capital. You are probably going to spend a lot of time and money chasing it.
8. Trade contractors and suppliers. This is a forgotten group of investors that have a vested interest in your success. Generally this is house by house equity capital for a share of the profits.
9. Investment bankers. This is very expensive, normally in the double digit range of internal rate of return.
10. Friends and family. This is a misnomer. It would be great if we had a wealthy father or rich uncle but that is not the case for most of us. This is a category of investment offering that is referred to as a Regulation D Offering. Generally it is limited to a maximum of 35 investors. Regulation D Offering is a great source of equity funding but you can’t be sloppy. You need to have a lawyer involved in creating the agreement, the plan, the disclaimers and what is frequently referred to as the “big Boy” letter stating they can afford to loose the investment. Generally “friends and family” money is below $10 million which is below the threshold for most investment bankers. The funds are generally raised through networking with your doctor, dentist, lawyer, accountant, country club members and wealthy friends.
There are a lot of sources for equity capital. You need to be working now to develop the relationships. People like real estate investments. When the bottom of the market is perceived the flood gates will be opened. You want to make sure you have done your homework so you are there to take advantage of the opportunities.
How to think out of the box regarding Equity - To learn more about this author, visit Carl Moore's Website.
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Equity is expensive and investors want to buy assets for 10 to 30 cents on the dollar. There are a number of different sources for equity that can be accessed.
1. Land Owners. This has been a traditional source of equity for land acquisition and development. The land owner put the land into the deal as equity and the builder puts in the expertise for the land planning, entitlement, and development. Right now finished lots in many markets aren’t worth the cost of development so very few of these deals will be done in the near future but as the market strengthen this is a very good equity source to help your growth.
2. Land developer. There are a lot of land developers that have been left with finished lots being abandoned by builders. The land developers need to deliver lots to satisfy their investors and lenders. They need a builder to build homes so they can dispose of lots. The developer will subordinate the land to a construction loan, joint venture with the builder, or hire the builder for a fee to build the houses. We have a number of our builders involved in these types of deals right now.
3. Financial Institutions. There are work out opportunities to help banks liquidate real estate owned (REO) properties they have due to bankruptcies, and foreclosures. These projects will have finished lots, and undeveloped property. Banks will sell these assets at very favorable prices, terms, and conditions or hire you for a fee to manage the asset through completion.
4. Wealthy Individuals. Many Wealthy Individuals will fund land acquisition, pre-leased office or retail, etc.
5. Larger Companies. Builders that have joint ventured with large companies such as oil companies, railroads, manufacturers, retailers, etc. Generally they have idle land and facilities that they would like to liquidate. The first project can lead to a long term relationship.
6. Investment Funds. There are a number of individual investment funds which typically have a manager and an investment strategy. Generally you are going to locate these funds through networking.
7. Foreign Capital. You are probably going to spend a lot of time and money chasing it.
8. Trade contractors and suppliers. This is a forgotten group of investors that have a vested interest in your success. Generally this is house by house equity capital for a share of the profits.
9. Investment bankers. This is very expensive, normally in the double digit range of internal rate of return.
10. Friends and family. This is a misnomer. It would be great if we had a wealthy father or rich uncle but that is not the case for most of us. This is a category of investment offering that is referred to as a Regulation D Offering. Generally it is limited to a maximum of 35 investors. Regulation D Offering is a great source of equity funding but you can’t be sloppy. You need to have a lawyer involved in creating the agreement, the plan, the disclaimers and what is frequently referred to as the “big Boy” letter stating they can afford to loose the investment. Generally “friends and family” money is below $10 million which is below the threshold for most investment bankers. The funds are generally raised through networking with your doctor, dentist, lawyer, accountant, country club members and wealthy friends.
There are a lot of sources for equity capital. You need to be working now to develop the relationships. People like real estate investments. When the bottom of the market is perceived the flood gates will be opened. You want to make sure you have done your homework so you are there to take advantage of the opportunities.
How to think out of the box regarding Equity - To learn more about this author, visit Carl Moore's Website.
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