Investment Formula

Investors want to make as money as possible. In reality, if they make 25% return or better on their investment, they will be happy. In my experience, time isn't as much of a factor as you'd think. For example, if you can generate a 30% ROI (Return on Investment) over 6 months, that's better than 30% over 30 months; however, they will still accept this return.

It's best to calculate a range of ROI from 30% - 50%. If you call an investor and ask for $2 million to purchase a property and renovate it, they will expect somewhere between $2.6 million - $3 million back at the end of the project, whether it'd be 6 months or 18.

Everyday, you have to know 2 types of comps. Real Estate and Construction.  Real Estate comps are the "comparable" prices for finished properties in the neighborhoods you are looking.  A block to block comparison is better than a neighborhood based comparison or a borough based comparison.  For example,  SoHo or Tribeca investments are priced much higher than Brooklyn, Lower East side or Harlem. Always work the comps to be in your favor.  The seller will always work the comps to be in their favor.  Investors will do the same.  Be knowledgeable.

Construction comps are the cost of construction costs per square foot in NYC. There are huge differences for union and non union as well as low end or high end. I will tell you right now, never do low end. Always go big with quality and detail. It pays dividends in the end.

My investors want at least a 30% ROI (Return on Investment) but start at 50% high end ROI. Anything above 50% is unexpected and is a bonus. - and it usually means you mispriced the deal.  Missing an estimate on the high side can be as bad for your credibility as estimating to low of a profit.  It may seem like you were guessing.   Plan for 50%, settle for 30%.

I came up with the following formula after time.  This formula isn't designed to give you the profit, which is traditional in most formulas. This formula is deigned to determine the Acquisition Price. If you can't get the acquisition price, then the deal isn't worth it.  If you can get the acquisition price, you are certain to make a significant profit.  This needs to be black and white for investors.

Selling Price. In New York City, the selling price is going to be the neighborhood comps. Theres not too much you can do to drive up the selling price, even if you do high end fixtures and kitchen. Going high end simply beats out your competitors.  You may be able to go a little higher, but investors i've worked with don't buy into this. They always take the most conservative route.  Ultimately, you need to manifest what the profit will be. If you can't plan for the minimal ROI then don't do the deal.

S = Selling Price
C = Construction cost
A = Acquisition Price (Investment Price)
P1 - Profit at 30%
P2 = Profit at 50%

30% formula:
A= P1(S-C)

50% formula:
A=P2(S-C)

Finding Investors

Go to Craigslist, look under the section called Services Offered then Financial Services. Or you can also Google "real estate investors" or "lending brokers".

There are tons of lending brokers. They get paid when they get you an investment. They are on your side and will help you structure a deal for the investment pool. They will refer you to the right investor.  Because of state investing laws, they are State specific, so stay within your state when looking. Some are licensed in more than one state. You have to ask. They will usually tell you first thing.

I placed a link below (may die out over time) as well as a photo of their advertisement.  OK people - These ads are real. If you have a good investment, (30% or better ROI) then they will invest in you. If you have construction experience, you are qualified to manage this investment.  Know what you are talking about and there will be more investors than you can handle. See Investment formula to know how to put a deal together.

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Helpful Books

The following list contain a few of the books I've recently read. The more you read the better.  They not only help you get a better understanding of real estate investment but also helped build my confidence.

Public-Private Partnership Projects in Infrastructure by Jeffrey Delmon

This book explains how to work with government in real estate development. It's pretty good. What i got out of it was that there is no one way to work with the government.  Work to create a win-win scenario on each investment.

How to be a Real Estate Investor by Phil Pustejosky

Check it out on amazon including the reviews. Quite frankly I don't remember if it was good or bad.

Rookie To Riches: Wholesaling Real Estate by Michael Brandon

It was ok. It provided a real life scenario by a guy down and out on his luck. If he can be successful, you can too.

Real Estate Developer's Handbook by Tania Davis

It was good, but simple. This book convinced me that I was knowledgable enough to go out on my own. I didn't learn anything from it but did gain confident after reading it.

http://www.realestatedevelopmentcoach.com/ By Colm Dillon.

I bought this book written by Australian Developer, Colm Dillon. I contacted him about a question and he emailed me back right away. He's sort of like the Donald Trump of Australia.  This was the first developers book i read. It was good.  But the investment is now outdated.  I've since learned that the investment capital is there but not at 80/20. It's more like 60/40 where the investor will put 60% in on a deal to your 40% skin in the game.  for the other 40% you have to disclose they will have to take aa second lien position and offer 2x return on investment up to about 25% of their investment per project (up to 2 years - 30 months).

I read a book a week on average using the kindle app on my phone.  I find Biographies of successful entrepreneurs to be as helpful as industry specific books.

Note: I've also read most of Donald Trump's books. He doesn't really tell how to do something. He just tells what he did withouth going in to much detail. The thing to learn from THE Donald is you can wing it but stay focused on the goal. Having a goal is key. And also, never stop asking until you get what you want. 

Your Business Name

Your company name should say what you are and/or what you do.

"Smith Real Estate Investing, Inc.", for example, is a great name.  "Smith, Inc." is not.

Don't get caught up in catchy names or anything that may be trendy or novel. The more trendy or novel a name is the less it may be relevant down the road.  Keep it simple.

How to Use Credit

Credit should only be used for leverage not for cash.

For example, It's OK to use credit for an earnest payment when you put an offer in on a property, but only if you are 100% guaranteed to get back.

Another good use of credit is to cover expenses (high's and lows) against income you are guaranteed to get in. For example, if you have an investor that's contractually guaranteeing the purchase and construction of a project, you can keep a project moving by using a credit line to cover labor or material costs; but only if you trust the investor and they are proven to pay relatively on time on other projects.

If you are doing government work, certain agencies are known for not paying on time. Make sure you have an arrangement with the creditor that allows you to pay them when you get paid. In most cases they want at least an interest payment made on a monthly payment. Do you have the ability to make payments on the credit line if the investor is late? If not, don't use credit lines.  Let the project sit.

Never use credit to start your company, pay bills or other overhead, especially if you don't have steady income.