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Chapter J

Different Priorities
Words To The Wise

Different Priorities

Let’s discuss the differences among lenders, investors, and partners. Do you remember what the three major components to an effective venture partnership are? Common goals, the ability to communicate and compatible styles. Traditional lenders want what? They want security and collateral. In other words, we’re talking about a hard, cold relationship. Lenders primarily want collateral. There are credit lenders who are interested in your income and ability to repay, and then there are collateral lenders, equity lenders who are interested in the property’s ability to protect them from you, the borrower. Most high rate, fast professional lending in real estate for investors is collateral lending. This is where many real estate investors go when the Bank of Family is not available.

What kind of relationship are you going to have with a lender? Take a hard money lender who may have loaned up to 65% of the fixed up price on a property. What happens if you don't perform? They take your collateral. Bye, Bye. It’s hard, it’s tough, and they don't care about your sob story. You did not have common goals or compatible styles. Perhaps you weren't able to perform within the time frame. Hopefully you had the ability to communicate. This type of lender can be the component on the financing on a deal, as long as you’re very clear about their role. Have no doubt – they’re clear about their role. Listen to Scott, his wife, Debbie, and Laura discussing this in a seminar:

SCOTT: I guess our first experience was through a money broker for a renovation and, whew!

DEBBIE: Where that runs is that you’re no longer the controlling partner and you’re taking a submissive role. You’re begging for money.

SCOTT: Yeah, you’re saying I need this much and they’re saying. Well, I'll give you $5,000 and when you show me receipts for that $5,000 then I'll give you the next $5,000.

MARGE: Which means you’re out of $5,000.

DEBBIE: And which means that we've put out $5,000 and we’re waiting on that…so it puts us in a submissive role instead of the
dominant party.

SCOTT: We also found out that that’s not usually the way it goes, but this particular guy just handled it that way, but thanks for that.

MARGE: Have any of you been in a situation where a partner is truly obstinate, impossible to deal with? Has anybody ever heard of

SCOTT: We did, in that situation, I was talking about before with the money. It has been very difficult, extremely. He lives a long
ways away and he is the one that inspects, so it’s a 100 mile
round trip for him and it’s at his leisure, when the original
agreement was supposed to be within two days, within two days
we'll have the next money that we need. Being in that business,
I can go renovate a house pretty quick, so in that aspect we
have had difficulty. He won't return phone calls, hides behind voice mail. He doesn't communicate properly as far as Grandma
answering the telephone not knowing anything, children
answering, fax machine on the same line. It was really weird,
first time out too.

MARGE: Do you have a written agreement? Is there anything in the
agreement which would provide for either of the partners getting out?

SCOTT: Yeah, on his end. It’s all one-sided.

MARGE: It’s all one-sided; you know that now.

Lenders - Investors - Partners - Chapter J (continued)

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