Standard Operating Procedure:Steps to Raise Capital for Equity Partnerships

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“If you chase 2 rabbits you will catch neither”

My View of Real Estate

“Funding = Freedom”

This is my Rabbit

The Pancreatic Cancer Case Study 1467 Sunny Acres w/ none of my own cash or credit

Purchase Price $53,500 One week Prior to my surgery

Improvements $21,000

Private Money $79,000

Cash Back at Closing $25,500

Acquisition fee $4,500 – I collected this up front

Sold $124,900 April 2012

Gross Profit $50,500

Net Profit $35,200 + 4,000 Acquisition Fee (all completed while recovering from Pancreatic Cancer)

Trulia.com & public records

• First Private Lender I Ever Got And I Had NO JOB, $15k Credit Card Debt and ZERO EXPERIENCE

• Unsecured Note• 1st Note I ever did in Spring 2004 (non IRA)

• 60k Loan / Note

• 18% Interest / paid annually

• 5 Yr. Note

• 2nd note I ever did (IRA)

• Interest Paid annually

• $10,800 due in June every year

• 90k

• 10%

• 5 Yr. Balloon

• Unsecured

• No Mortgage• No Security

What Are Your Goals?

• Rehab, Fix & Sell

• 3-4 Months

• Buy, Fix & Sell

• Buy, Less than 5-10k improvements, resell

• 6+ Months (BIG Projects)

• Buy, Fix & Sell

• Here’s the Thinking

• 30-60 Days

• Big Improvements

• 45 Days to Close

• Once a Buyer is Under Contract

What Are Your Goals?

• Back to Back Closing?

• Rental?

• 3-5 Year Partnership

• Tax Lien

• 6 Month Redemption

• 1-3 Years

• Option 1=18-24%

• Guaranteed

• Option 2=I Get a House Free & Clear

Disclaimer / Disclosure

• I am not an attorney….although I used to play one on T.V.

• I am not a financial planner anymore….although I used to be from 1998 to 2005….

• I am not an accountant and have NEVER EVER wanted to be….

• Everything I say today is for informational purposes only

Q. What is a Private Money Partner?

A. Someone / Anyone who has cash who partners/ invests or loans to you / with you!

A. Assets Can Include Savings, Checking, CD’s, Brokerage Accts, Liquidated Mutual Funds,

Stocks, Bonds, Retirement Accts, Health Savings Accts, Lines of Credit,

Q. Why Do Private Money Partners

Give Real Estate Investors Money To Do Deals?

A. Because The Investment Alternatives Suck and The Returns are Better in Real Estate….AND they

like and trust you.

Let me explain……

CD Rates: 1% Return on Investment

Annuity Rates: 4% Return on Investment

Bond Rates: 3.85% Return On Investment

Consensation Drives Behavior

S&P 500: Last 5 Years = ONLY 7.2% per year

S&P 500: Last 10 Years: 6.71% Return on Investment

Precious Metals

$500,000 Mutual Fund Investment

American Funds = Small Cap World

Exp ratio = %1.09 (paid to the fund manager) @ 10% = $50,000 Profit / ROI

@ 8.91% = $44,550 Profit / ROI

“A” Share Commission (paid to the financial advisor who sells this mutual fund to their client)

$500,000 = 2% (breakpoint) = $10,000

$500,000 - $10,000 = $490,000 - $5,341 (%1.09 exp ratio) = $484,659 left (zero ROI)

$15,341 dollars in FEES for American Funds

$1,500 dollars in FEES for Equity Trust (self directed IRA)

Share Classes

Class “A” Shares – up front commission

Class “B” Shares – back end commission & higher expense ratio

Class “C” Shares – small annual commission & highest expense ratio

“LOAD” / “NO LOAD”

Load = Commission

No Load Fund = No Commissions

Paying a money manager = charge a money management fee EX: Sell no load funds BUT charge 1% money management fee + 1% expense

ratio

Variable Annuities

Act Very Similar A Mutual Fund BUT

Access To 40 Funds Within The Annuity

Transfer From Fund To Fund With No Expense

3% Commission Up Front

AND

2% Exp Ratio Per Year Every Year

SUMMARY: If you were a private investor with an OLD 401k, where would you rather invest?

OPTION “A” = NOT US

CD = 1%

Annuities = 4% or less

Bonds = 4% or less

Stock Market past 5 yrs= 7.2%

Stock Market past 10 yrs = 6.71%

Significant Volatility

No Control over Investments

THE WEATHY DON’T DO OPTION “A”

OPTION “B” = US

We pay 12% minimum

~OR~

15% of profit

Whichever is greater?

Predictable

Control over investments that you can see and touch

THE WEATHY DO OPTION “B”

Favorite Source of Funding for $40k Flips?

A Self Directed IRA is an Individual Retirement Account where the owner funds real estate deals.

We get the funding for our $40k Flips from IRA’s.

Sample Investments Note (I.O.U) w/ Mortgage

Fraction Deeds

Invest in Stock Companies BUT NOT S-corps

MORE INVESTMENT CHOICES

Stocks & Bonds

CDs

MutualFunds

PPMsTax

LiensMortgage

NotesTrust

DeedsPrecious Metals

LPs&

LLCs

FactoringLease Options

Mobile Homes

Unsecured Notes

Leasing

and more....

Real Estate

REAL ESTATE IRAs

Real estate can create a life-long, tax-free income stream.

~ Real estate investing is one of the major attractions of Self-Directed IRA investing

~ Rental income is tax-deferred (distributions are never taxed if in a Roth IRA as long as the asset is held in your plan for at least five years

~ Keep in mind that you may never personally use the real estate while it is held in your plan. After age 59½, you may distribute the real estate to yourself penalty-free, and then occupy it

REAL ESTATE PURCHASE STRUCTURES100% Cash – Property may be purchased with cash from an IRA. with your IRA with the IRA owning 100% of the property.

Partnering – An IRA may partner with another person, entity, or IRA.

~ Your IRA owns a percentage of the property

~ Can partner with personal funds (and/or disqualified persons)

Leverage – A (mortgage loan) to purchase property.

~ Must be a non-recourse loan

~ Typically for income producing properties with 35% to 40% down

~ Leveraged portion of the investment may be subject to UBIT (Unrelated Business Income Tax)

3 Step Process

1. Set Up A IRA Acct = iPlan Group (Acct Application Form)

2. Fund The Acct = (Rollover / Transfer Form)

1. Rollover = from 401k or 203b

2. Transfer = from another IRA

3. Make An Investment (Direction of Investment Form)

1. Copies of Note and Mortgage

Note and Mortgage

• What is a Note?

• I Owe You

• Who is the Borrower

• Who is the Lender

• What is the Interest Rate

• When is the Interest Due and Payable

• Monthly

• Quarterly

• Annually

• Payback

• 1 Year / 3 Year / 5 Year

• Amortized / Balloon??

1st Note and Mortgage

1st Note and Mortgage

2nd Note and Mortgage

2nd Note and Mortgage

• Notary

• Mortgages

• Do have to be notarized

• Notes

• Do NOT have to be notarized

CASE STUDY 3954 Homestead Rd Ravenna, OH

• Purchase Price $41,500

• Private Money Partner Funding $79,000

• Self Directed IRA

• Cash Back at Closing $37,500

• ACQUISITION FEE $3,400 PAID TO ME WHEN I BOUGHT IT

• None Of My Own Cash or Credit

• Actual Sold Price $121,000

• Profit $44,000

• Closing October 15th 2013

This is exactly what it looks like to sell a house for HUGE PROFITS!

April 24th 2013 at 4:54 pm

Securities Dealers?

• We are not securities dealers!

• What is and is not a security?

• Q. If you are dealing with a security / what disclosures or documents do you have to file to be compliant?

• A. Private Placement Memorandum

Securities DealersFederal Rules

• Securities Act of 1933

• Securities Act of 1934

• Reg D

• Rule 504

• Rule 505

• Rule 506

Securities Dealers State Rules Ohio“Blue Sky Laws”

1. Real Estate is NOT a Security (exempt)

2. Notes and Mortgages are NOT securities (exempt)

3. Tax Liens are NOT a Security (exempt)

4. Partnerships & Businesses & JV’s are NOT Securities (exempt)

What Is & Is Not a Security

• WHOLE Notes & Mortgages are NOT Securities

• They are EXEMPT

• Fractional Note IS a Security

• I do not personally do these

• *Anthony Geraci, Esq

Three Ways

1. LOANS

• Notes & Mortgage

• 12% Int. or 15% of Profit

• ~Whichever is greater~

• I do not pay them anything monthly or quarterly

• Investor gets paid when house sells ~OR~

• Balloon Payment

• 1 yr.

Three Ways

1. Loans (notes) from Investors to Your LLC

• Benefits

• You own the property 100%

• You make all the decisions

• The Lender is “The Bank”

• Disadvantages

• You are REQUIRED to fulfill on the promise you made on the NOTE (I Owe You)

• You Pay or They Foreclose!

Three Ways

2. JV PARTNERSHIP

• Fractional Deed for ownership

• Join Venture Agreement for decision making

• Benefits

• No Lender Liability

• They bring in the money and they are co-owners so they have the downside

Three Ways

3. LLC CO-OWNERSHIP

• 50/50 Partner in the units of the LLC

• Can split profits 80/20 or 70/30 or whatever you agree to

• Benefits

• No Lender Liability

• They bring in the money and they are co-owners so they have the downside

Raising MoneyPeople that I have a prior existing relationship

• Equity Partnership• Business

• LLC

• Partner On Deals

• Chuck Finds the Deals

• Jimmy Puts Up the Money

• Joint Venture

• Does NOT need Registered

Raising Money

• Converting a Stranger to a Private Money partner?

• What is a “Prior Existing Relationship?”

• There is no True Definition BUT the Standard is “3 Touches & 30 Days”

• Needed in order to make someone an offer

Raising MoneyFrom the public / strangers or people we do not have a prior existing relationship

• Create a Prior Existing Relationship• “Education Based Selling” them thru the Cap Raise PPT

• Teach about the market and options

• Peal Back the Onion and remove their other options

• Teach about my deals

• Teach about sample deals / give them examples

• WITHOUT making them an offer / asking to fund a deal

• Exclusion Mentality:

• “Do You Know Anyone Who May Be Interested In Learning More About This or Doing This With Me?”

Raising MoneyPeople that I have a prior existing relationship

• Start with this concept…..The “Equity Partnership”

• Business

• LLC

• Partner On Deals

• Chuck Finds the Deals

• I Put Up the Money

• Joint Venture

• Does NOT need Registered

• Must Advertise Partnerships / Joint Ventures / Stock in LLC

ROI Expected

• Rehab, Fix and Flip

• 10-22%

• 2 Points Up Front PLUS 1 Point per Month

• 12% or 15% of Profit – Whichever is Greater

• Back to Back Closing

• 2 Pts.

• $2500

• Whichever is Greater

ROI Expected

• Rental

• 7-11%

• Single Family

• Monthly Payments

• (must commit)

• Tax Liens

• 6-24 Months

• 7-11%

ROI Expected

• 30-90 Day Money

• 22-25%

• Toughest Money to Get

• From a private money lender or a hard money lender

• Too much hassle regardless of ROI

• Buy it, Put it Right Back on the Market in its as-is Condition OR with less than $10k improvements

• Short Sales Where we Get an Incredible Discount

• House Needs Little Work

• EX: 3331 Marmore, Wakehurst,

Example: ROI Expected

• Example• Buy $200k

• Repairs, Ins, Utilities, Mrktg, etc $50k

• Sell $350k

• Loan $250k

• 25%

• $62,500

• Close in 90 Days

• Divide by 4

• = the amount they need to earn over 90 days to get to an annualized return

• $15,625

Example: ROI Expected

• Gross Profit

• $100k

• Closing Costs

• 10% of the Sales Price

• Rule of Thumb

• $35,000

• 3% Buyers Agent

• Title

• Property Taxes

• Title Insurance

• Closing Fees

• 3% Seller Concessions

• 1% Misc.

• $600

ROI Expected

• Adjusted Gross

• $70k

• Before Private Lender Interest

• Net

• $70,000 - $15,000

• $55,000

Sweet Spot

• Easy Money

• $50k - $500k

• 35 – 55 Year Olds

• OLD 401k, OLD IRA $

• “Regular Guy”

• Medical Sales

• Police / Fire

• Banker / Brokers

• Engineers

• Managers / Ops Mgrs.

• Steel Worker

• “Average Joe”

Case Study #14 1297 Steve Dr. Akron, OH • Bought June 2013

• Bank foreclosure

• Paid $50,500

• Improvements $36,000

• Private Money $90,000

• Funded by private lender via Self Directed IRA

• CASH BACK AT CLOSING $39,500

• ACQUISITION FEE $4,000 PAID TO ME WHEN I BOUGHT IT

• Just Listed $149,000

• Gross Profit Potential $63,400

• Net Profit Goal $40,000

Sweet Spot

• Tough Crowd

• $1,000,000 in assets +

• Clients are Married to their Financial Advisors

• Stock Broker

• Financial Planner

• Attorney

• Special Treatment• Access to private

money managers who $1M < don’t have access

Sweet Spot

• Tough Crowd• Little Old Lady/Man

• 70 + Years Old

• All They Tend to Care About is Security

• 1-2% is just fine with them

• Son or Daughter

• Manages Their Money

• The Last Thing Your Son or Daughter is Going to do is put Their Momma’s Money at Risk

• Test

• They Will Test You with Small Money

• $1M Client Gives $80k

Professional Financial Advisors / Investment Managers

• “Selling Away”

• Cannot Sell Financial Products / Instruments That Their Broker Dealer hasn’t Endorsed / Registered

• 22 Page Affidavit Every year

• Securities Dealers

• These are not Sources of Leads because They Cannot “Sell Away”

IPlan GroupErika Kelly (440) 484.5566

Free 30 Minute Strategy Session

http://signup.iplangroup.com/srecnowJill Banner, Found and CEO

Erika Kelly, Client Relationship Manager (She’s Here at HUD Summit)

Kayla Stone, Client Relationship Manager

Q&A

PROHIBITED HOLDINGS IN IRA’s The IRS code doesn't tell you what you can invest in. It tells you what you can't invest in.

~ Life Insurance

~ Collectibles, which include: + Works of art+ Rugs+ Antiques+ Gems, + Stamps + Alcoholic beverages+ Metals & Coins (except certain Bullion & minted coins)

~ Stock in a Sub-Chapter S corporation

PROHIBITED TRANSACTIONS IN IRA’s

Generally, a prohibited transaction is any improper use of your IRA account by you, your beneficiary, or any disqualified person, such as:

~ Borrowing money from it

~ Selling property to it

~ Receiving unreasonable compensation for managing

it

~ Using it as security for a loan

~ Buying property for personal use (present or future)

with IRA funds

DISQUALIFIED PERSONS IN IRA’s For IRAs or 401(k)s, a disqualified person is:

~ The IRA holder and his or her spouse

~ The IRA holder’s lineal descendants, ascendants and their spouses

~ Investment advisers and managers

~ Any corporation, partnership, trust, or estate in which the IRA holder has a 50 percent or greater interest

~Anyone providing services to the IRA, such as the trustee or custodian

(See IRS Section 4975 for a complete list of prohibited parties)

Investing with IRA’s? Consequences of DOING IT WRONG

There are possible severe consequences for you as the owner of the retirement account and for the other person(s) who participate in a prohibited transaction, including: The investment being treated as a distribution, which may trigger a taxable event

An early distribution penalty of 10% if you are under the age of 59½ A 10 percent penalty for early distribution

You may incur a 15% excise tax on the amount involved in the prohibited transaction

You may be subject to additional penalties which can accrue for under-reporting for the years before the IRS discovers the prohibited transaction

Action Plan:

• Make 2 Lists

• #1 List of People You Already Know

• Project 100: Discover Your Sphere

• They can Refer

• They can Cheerlead

• They can Lend

• Make 2 Lists

• #2 List of Places You Can go Meet More Potential Partners

• Golf Courses – Country Clubs

• Chamber of Commerce

• REIA Clubs

• Kiwanis

• Hondros

• Kids Soccer Games

• Kids Basketball Games

Elevator

• Hey Josh What Do You Do?

• “Well, I Raise Capital for Real Estate!”

• My Favorite

• “I raise money for real estate deals. I raise money from private investors, I buy foreclosures and pay my investors a fixed double digit rate of return.”

• “I own a bunch of real estate businesses and I raise capital to fund projects. I work with investors and pay them a fixed double digit rate of return.”

Elevator

• Elevator Pitch

• BECAUSE ITS SUPER SEXY!!!!!!

• They Typical Response is:

• Oh that’s great I’ve always wanted to buy a rental

• Oh kind of like Carlton Sheets

• Sounds Interesting, Tell Me More

Favorite Lines

• Favorite Lines

• “I've never had a private lender lose money with men and you will not be my first!”

• “I'm married, you're married, we don’t have to get married!”

• “Lets do one deal, see how it goes, and then once it goes well we can do the second deal!”

• “I can use your money but I don’t need it!”

• Never Act Desperate!!!

Favorite Lines

• Favorite Lines

• “Do you know anyone who’s looking to buy a house, sell a house or who wants to get a aggressive fixed double digit rate of return?”

Plan Of Action

• #1 Develop 12 Second Elevator Speech (use mine) • Tell Everyone About What You Do “In A Cool

Way”

• #2 Create Marketing Collateral

• Handouts & Mailers

• Investment highlight .doc

• Improving communities .doc

• Neighborhood flyer .doc

• IRA vacation flyer .doc

Plan Of Action

• Newsletter System• 3rd Tuesday of each month

• Newsletter is due

• 1st draft

• 3rd Wednesday of each month

• Newsletter is approved by me

• 3rd Thursday of each month

• Newsletter is finalized and sent to printer

• 3rd Friday of each month

• Newsletter is mailed out to everyone on my list

• MAC – “PAGES”

Monthly Mailer

Plan Of Action

• #3 Create Funding PowerPoint

• Josh DFY its in AI members area

• Millennium Capital Inv 8.27.12 .ppt

• #4 Create Investor/Partner Questionnaire

• Josh DFY its in AI members area

• Evaluation .doc

• #5 Develop a System for Tracking Potential Private Lenders

• Show Google .doc

• Basecamp

Plan Of Action

• #5 Project 100 • Brainstorm list of people who you know and know of

• #6 Send Out a Monthly Mailer to Your List of Physical Addresses

• People you have a Prior Existing Relationship

• People you don’t have a PER

• #7 Email Your Monthly Mailer to Your List of Email Addresses

• People you have a P.E.R.

• People you don’t have P.E.R.

Plan Of Action

• #8 Join Professional Organizations• Network with potential investors

• #9 Make Time Every Week to Network• Lunch, coffee, golf, bowling, drinks, appetizers

• #10 Write Articles: Become a Published Author

• E-zine Articles

• Squidoo Lenses

• Hudpages

• www.prweb.com

• Credibility and top of mind reference

Plan Of Action

• Writer

• www.textbroker.com

• www.99copywriters.com

• www.99designs.com

• Real Estate Commentary

• www.kcmblog.com

• www.dsnews.com

KYLE GARIFO – Chicago, Illinois

• Case Study #19

• Bought the property on Tewksbury in December for $199,300. 

• Sold on April 5 for $350,000

• Made $78,405 on the HUD plus the $16,000 left in my account that was not used for repairs for a TOTAL PROFIT of $94,409!

“You tell me if Josh’s 40k Flips Program was worth it!” - Kyle Garifo

6264 W 54th St Case Study #22 Bought and Sold By Shlomo T.

Lives in TEL AVIV, ISREAL!!!

Running $40k Flips in the U.S. Virtually

Purchase Price $45,000

Improvements $12,000

Total Investment $57,000

Sold for $85,900

Profit $28,900

CASE STUDY #23SCOTT BENEDICT San Francisco, CA$40k Flips Coaching Student in July 2013

How Fast Can you Make Money with $40k Flips?

“Many investors think big real estate profits are out of the question. $40K profit is NOT out of the question.  I live in CA....and there are deals to be found everywhere.  I just flipped a house, 90days, for

close to $200k profit 1 hour south of San Fran.  I’m in a deal now in the Bay Area and the projected profit is $120k.  I have subscribed to Josh's $40K Flips System because he breaks it down and makes

it easy to understand and use.”

5020 Beachwood Drive Seaside, CA

• Paid $555,000

• Rehab $10,000

• Selling $739,000

• PROFIT $150,000+

• Funded with Private Money Partner using Self-Directed IRA as taught by Josh in $40k Flips Program.

• Negotiated the deal from the short sale lender / Bank of America.

• Small scope of Rehab to include: kitchen flooring, appliances, carpet in two rooms, some interior paint, update landscaping.