Think like a bank

[Evan]

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So if I understood correctly:

Japanese have a bunch of average companies doing well but none of them are doing exceptionally well?

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I think it was more like they have a bunch of average companies doing averagely at best while the financial markets around them boomed.


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I'd like to know how far into the future the best companies in the world have planned out. The best American companies, the best Chinese Companies, the best european companies. I hardly doubt they plan no more than 5 years into the future.

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1) I never said companies don't plan 5 years into the future. I said that for most startups, especially tech startups, it's a waste of time.

2) This summer I was working at Citigroup and I spent part of the time working on plans for 7 and 12 years. Looking at our 06 projections compared to the same project a year earlier, the numbers had changed quite a bit. Planning is fine in many cases, but there are lots of times where it's just an exercise in futility.

[Tien]

Good point.

[spex x]

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Robert G Allen from "Multiple Streams of Income". His other book "nothing down" has been the highest selling real estate book in the entire world.


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Off topic: Robert Allen's real estate advice is laughable and will likely end you up in bankruptcy, and possible in jail. DO NOT follow this man's advice. In fact, don't bother to read 'Nothing Down' at all, best-selling RE book or not. Here are two quick reviews from a REAL, non-guru, experienced real estate investor (whose advice can actually make you plenty of money):

http://www.johntreed.com/Reedgururat...l#anchor496881
http://www.johntreed.com/nothingdown.html

[kcheel]

I recently had the "fun" of working with banks on trying to get a loan to purchase the business that I currently manage.

Little background info. Its a small business, we have two locations. We are an authorized retailer for wireless phones/service and also sale satellite TV service.

Been in business since 2001 and always profitable since opening. Gross sales of $700-900k for past 4 years.

As for me, while I didn't have much money to put down on it out of pocket, I have good credit and good history with my local bank.

The banks around here were basically useless and were a big waste of my time. They would agree that the business is profitable and I knew the business but would not help me at all unless I was willing to put up 100+% collateral against the $200k I needed to borrow. I had no way of coming up with that type of collateral of course. I own my own home but only been in it a couple of years and do not have much equity in it yet.

Luckily I know some people who have plenty of money and they are loaning me a large portion of what I need and current owner is willing to finance the rest for me himself.

So I am officially taking over on April 1st. Its been a long time coming. [img]/images/graemlins/smile.gif[/img]

[Tien]

Nothing down does work. I am doing it, here is a sample deal im about to close this next week.

Man has a house worth 240 000 calls me through one of my advertisings and needs to get rid of his home ASAP. Agents did a bad job selling it. He has a 105 000$ mortgage and about 80-90K in credit card debts.

This is how the deal is about to proceed:

120 000$ cash at closing to the homeowner.
75 000$ seller take back mortgage. Basically he takes back a 2nd mortgage with 0 paymetns and 0 interest. He is willing to wait for his money until we re-sell his house.

120 000$ cash will come from a private lender at 7% interest secured by 1st mortgage position at 50% LTV. Did I get the money from the bank? No. Private lender = someone I spoke to getting 3% return on investment from the bank decided 7% secured by real estate is better deal.

Cash from my pocket? 0

Nothing down? Yes, nothing down.

John T Reed can say what he wants to say. There are thousands of people (like me) making deals left and right using none of my own credit or money.

I am going to jail or bankruptcy by doing this?

No. Worse case scenario I make 5-10K, best case scenario deal makes me profit 35K$.



Deal 2 that I am about to close in a few weeks.

Very motivated seller calls me again through my craigslist ad. Again, agents did a bad job selling the property.

Seller has a house worth 300 000$
Negotiated down to 260 000$ (damn, is this possible?!)

Seller will accept following terms: 11 000$ cash at closing.
249 000$ 1st mortgage with 800$ monthly payments until we sell the house (omg impossible).

11 000 will come from private lender at 6% interest.

Cash from my pocket: 0

Nothing down


What I am doing isn't pie in the sky. The trick is to find people who really need to get rid of their home ASAP and can't wait another 2-3 months to do it. When you get someone that is so motivated to sell their home, they give you very good price and terms. Finding these people is the most difficult aspect of nothing down deals. It costs thousands and thousands of dollars in targeted marketing and sifting and sorting through dozens and dozens of homeowners until I find the right one.

[spex x]

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120 000$ cash at closing to the homeowner.
75 000$ seller take back mortgage. Basically he takes back a 2nd mortgage with 0 paymetns and 0 interest. He is willing to wait for his money until we re-sell his house

120 000$ cash will come from a private lender at 7% interest secured by 1st mortgage position at 50% LTV. Did I get the money from the bank? No. Private lender = someone I spoke to getting 3% return on investment from the bank decided 7% secured by real estate is better deal.

Cash from my pocket? 0

Nothing down? Yes, nothing down.

John T Reed can say what he wants to say. There are thousands of people (like me) making deals left and right using none of my own credit or money.

I am going to jail or bankruptcy by doing this?

No. Worse case scenario I make 5-10K, best case scenario deal makes me profit 35K$.

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Sure, I guess if you can 1) convince someone to make a 75k unsecured loan to you at 0% interest and no payments, and 2) find someone with a substantial amount of cash willing to make you a loan for 120k, this strategy works great. AS to the first point, in many states you could be PROSECUTED for this. In many states it is ILLEGAL to target market to foreclosures or to those in risk of foreclosure.


[ QUOTE ]

Seller has a house worth 300 000$
Negotiated down to 260 000$ (damn, is this possible?!)

Seller will accept following terms: 11 000$ cash at closing.
249 000$ 1st mortgage with 800$ monthly payments until we sell the house (omg impossible).

11 000 will come from private lender at 6% interest.

Cash from my pocket: 0


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Here again, you've got to get both seller financing and a substantial amount of private money. I realize that its not impossible to do these things. But as far as walking into a bank w/ this deal, you can forget it. And the vast vast majority of those in preforeclosure won't be in any position to offer you seller financing. In any case, I'm glad that you are able to make such great deals.

[Tien]

I am from Canada :P

I know a lot of people will use Robert Allen's techniques without educating themselves even further and you are correct, A LOT of them DO end up in a lot of trouble.

Many new investors simply read 1 book or 1 seminar, go out into the real estate market, and do everything wrong. They get "dealitis" and try as hard as possible to turn a bad deal into a good deal, which doesn't work.

There are a lot of Real Estate Gurus out there that teach impractical stuff and that is the caution I want to put out.

But these nothing down deals are not impossible at all. You just have to do your due diligence and proper analysis and you won't end up in trouble.

We home flippers / investors get a real bad name sometimes by the media, but it's due to that 1 bad apple that spoils the batch as well as newbies that walk into the real estate world and make a gigantic mess.

[Tien]

By the way, we are really derailing this thread and I apologize again.

What kind of businesses are you into spex?

I don't have much experience in startup businesses that require a lot of capital, nor do I have much experience in internet businesses.

This thread was more for startup businesses that requires a lot of capital and not so much for internet businesses. Is that what you are into?

Also, I don't think you mentioned what YOUR criteria for being a bank is. Since you are more involved in that field than I am, I would like to know what you have to say about lending requirements.

[spex x]

Yes, I invest in small businesses. I work both with start-ups and small businesses that wish to expand. Basically, I buy shares of ownership for cash. I only work with small businesses in traditional fields - dry cleaners, laundromats, car washes, restaurants, specialty services, etc. Its pretty fun. I also invest in real estate, although, admittedly, I keep it pretty simple - buy and hold residential property. I'm expanding more and more now into commercial property as well.

[spex x]

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The banks around here were basically useless and were a big waste of my time. They would agree that the business is profitable and I knew the business but would not help me at all unless I was willing to put up 100+% collateral against the $200k I needed to borrow. I had no way of coming up with that type of collateral of course. I own my own home but only been in it a couple of years and do not have much equity in it yet.

Luckily I know some people who have plenty of money and they are loaning me a large portion of what I need and current owner is willing to finance the rest for me himself.

So I am officially taking over on April 1st. Its been a long time coming. [img]/images/graemlins/smile.gif[/img]

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In my experience, this is how many many business acquisitions are accomplished. It is way easier to finance the purchase of an existing profitable business than a start-up, so imagine trying to get the bank to give you money for a start-up. But seller financing is very common when buying a business. In fact, the possibility of seller financing is one of the first things I look for when I'm looking for deals. It shows the seller's faith in the business, IMO.