The Road Ahead: The Corporation

globereflection-200×267.jpg The image of the reflected glass globe symbolizes corporate success. However, to me, it also suggests sustainability, morality and social conscience. These are some of the core values I will strive to include.

Why?
Owning a successful company, no matter how it generates money, means several things to me.

1) It will bring financial freedom. This means I will not be reliant on managers and CEOs, in whom I have little faith, for my livlihood. In the traditional employment framework, one mistake, one economic upset, or one failed product could endanger my ability to provide for myself and my family.

2) Being free of the ‘rat race’ should also provide more time for family, learning, and volunteer work.

3) If all goes well, there should be enough capital and contacts to branch out into entirely differnet businesses (e.g. restaurants or bars, waste clean-up and reduction, clean and renewable energy technologies).

How?
This is the hard part. I’ve touched on various issues in the preivous Road Ahead posts. There are several steps to setting up a corporation for real estate investing.

1) Determine the corporate structure (LLC, REIT, etc.), then incorporate, quickly.
– Currently, I think the incorporating as a numbered company may be the quickest option, and converting to an REIT in the future would still be possible. Given the new taxation rules for income trusts, it may not be advantageous to go that route.

2) Solidify partnerships, and set a board of directors.
– I can not run this company on my own. I need 1-2 dedicated partners.
– I also need a support team (accountant, lawyer, property manager, etc.)
– Once

3) Investigate investment opportunities
– This is the easy part, and will be ongoing
– Having a few potential investments on the board will make it easier to find prospective partners as it will give me some hard numbers to present

4) Develop marketing materials
– A snazzy name
– Powerpoint presentations
– A short flyer
– Business cards
– I need information to present to prospective investors

5) Continue to develop a network of investors (this may have some impact on (1)).
– My current network consists mainly of friends or relatives. This has more disadvantages than advantages, and may pose a serious roadblock
– I will need to expand to other real estate professionals through my current contacts and other networking opportunities

6) Collect investments, issue shares, determine dividend rates, etc.

Questions, questions?

1) Do I currently have enough investors for this type of venture? How feasible is it all?
– Depending on the amount of investment capital I feel I can secure, my options could change. If it is under $50,000, the simplest investment would be rental property under a non-incorporated partnership. Hopefully the first property will be something commercial, however, because I would like to diversify my current holdings.

2) I am not sure about partnerships at this time. I have approached several people in the past, some have already invested, but I am not sure if I can find a partner who is willing to give time to the venture.

Outlook:

Obviously this will not happen over night. The process will take up the better part of the next year as I slowly move through the steps that are roughly outlined above. However, I remain positive that this is possible with the right marketing strategy, the right partners, and some luck.

I hope you have a happy New Year!!! May 2007 be prosperous and joyous for you and your family.

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Part of the writing project over at BiggerPockets.

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Investment Corp v1.0

From ARRDPD:

basically, my LLC is borrowing money at say 5% from people. That’s all the people know and care about. They know that their money is going to be secured by a 1st mortgage in real estate.

The LLC takes the money, let’s just say it comes out to $100,000, and lends it to someone at 10% as a 1st mortgage.

Every month the LLC gets paid around $800 and it pays the people $400, therefore making $400.

A man after my own heart! Great work Ken. Using the money of risk-averse investors to make yourself money. The only thing I’m leary about in this particular scheme is the amount of risk involved. I suppose a simple title search will tell you that there are no other mortgages on the property. But, these are high-risk clients, I imagine since they are paying 10% interest, so the chances are higher that they could default. If they do, the principal is guaranteed, but there will be significant lawyer fees associated with the sale of the home and issuing foreclosure documents. These are unrecoverable.

In my scheme, I’m thinking about using investment money to buy investment properties. Thus, I would leverage their money by putting 25% down, and generate cash flow with a ROI of around 30% on that money. Then, I would pay them about 7-10% giving me some padding in case of unforseen expenses, vacancy rates, or market fluctuations. The investors would become Class B shareholders in the company. I would keep all the generated capital in the corporation for investment in further properties.

The hard part is convincing the investors, and finding the right properties.

Stay tuned….

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