Evaluating The Money Momma/Money Man
Use The Application For Investment
Determine The Comfort Level In Risk Taking
Evaluate As A Business Partner
Evaluate At Year-End
Application For Investment
Earnest Money Agreement
The Risk Quiz
Whether you’re just starting out and you haven't done any real estate investment deals yet, or you've done 2, or 22, or 220, in all cases you are in charge of the value of your time. You, as an operating partner are in charge of determining how much you, or better yet, the project will pay for the use of someone else’s money. If you use the nontraditional sources for money with an eye toward joint venturing, and you see yourself in the business of putting together deals, then you'll be approaching money sources as if they are clients, or customers. Four major steps are necessary.
Use The Application For Investment
First, you'll need to refine your approach and personalize it to the Money Momma’s/Money Man’s needs. Included in your materials is an “Application for Investment” developed for getting initial information from potential investor/clients. You can use something like this to find out about their needs, wants, and expectations from a real estate investment. You'll be evaluating them to see whether or not they are going to be compatible with what you are doing. In addition, the fact that the money person has to apply puts Debbie or Dan Has-A-Deal on a different footing. Dan is not begging for someone’s money, but instead he is offering possibilities for consideration.
For whatever reason, people are excited about different things. Some people really love the idea of taking an old historic project and putting it together, and some people think that single family houses are great and some think that apartments are great. It does not matter why they think this. What matters is that you've got to find out what they think; to see whether or not you are on the same wave length. For instance, I had a money partner who would only look at deals in a particular county, where he was sure rapid appreciation would occur. Most investors can't count on appreciation to make something a good deal, and they want to make sure profit is there on the front end. But according to this money partner’s perception of value, the deal was more secure if based on geography, not numbers.
Section 3B of the application regarding “Monthly payments” deals with whether their wallet can handle monthly cash flows which may be negative initially on a project. Can you envision a situation where you would be talking to someone and it wasn't money up front that was needed to put a particular deal together, but monthly cash flow to be handled?
Section 3C asks for a partner’s credit worthiness. Sometimes, you just need somebody’s credit because you need someone to qualify for a loan, whether an assumption or new financing. There are folks who have money to invest but they have lousy credit. I got caught once by making assumption about people’s credit. A well-heeled young couple wanted to invest some money with me. They both drove big white cars and seemed very capable of handling financial scrutiny. They had just recently gotten married. He was in business and doing very well and she held a responsible managerial job. However, when it came to the point of her going to the bank and filling out the paperwork for the loan assumption on this deal, lo and behold, we all got surprised. Her credit was poor, because she didn't think it was important to pay bills on a regular basis. She’d pay every couple of months and just double up on the payments, and had the attitude, I'm a big deal, so what, what’s their problem? Well, you know better than that. That particular deal did not happen for me in the time required because of her credit. I've learned my lesson about knowing the essential financial questions about my investment partners. If I'm in doubt, I look them in the eye and say, “How’s your credit? And can I check with your personal banker? By the way, what’s your social security number?” You do have the right to check anyone’s credit if you have a business relationship with them. If they don't pay bills on a regular basis, are they going to pay you in a timely manner when the project needs money?
Evaluating The Money Man / Money Momma - Chapter H (continued)