Investor Partnerships
There are two main ways we work with investors:
- You invest with a group to purchase a property
- We find the property and manage the entire process for you as an “Individual”
There are many investors that do not have the money, time or expertise to get involved in flipping but still want to be part of the process. When we find investment opportunities, we set up an LLC (Limited Liability Company) and then raise the capital to see who wants to be part of the investment.
In an example where we’re going to purchase a $1,000,000 home in San Jose, CA, renovate it for $100,000 and then sell it for $1,400,000, we could potentially see a $200,000+ profit after all expenses. Assuming we are going to pay for the property cash ($1M) and finance the construction and soft costs (title, marketing, etc.), we will need to raise $1,000,000.
We typically will take that $1,000,000 and break it down into 40-units of $25,000 each. This would allow an individual the ability to get involved in partial ownership in a piece of real estate for as little as $25,000 opposed to having to come up with $1,000,000 in cash. When the investment opportunity is presented to investors not everyone takes just one unit for $25,000. We may have someone invest $100,000 purchasing 4-units, one guy might take $500,000 (20 units) and several individuals will take $25,000-$50,000.
In the end, your ownership in the project is based on how much you invest. $25,000 into $1,000,000 is a 2.5% interest. So if you invested in this project at $25k, you would own 2.5% of a property in San Jose. When the project is completed and sold, your capital is returned along with 2.5% of the profits. If you owned 50% of the investment, you would receive 50% of the profits.
The paperwork that is signed in an investment like this is called a “Private Offering Memorandum (POM)”. This document spells out the strategy, fee structure of the manager, how ownership is taken, the risks involved, etc. When an investor agrees to move forward, they sign the POM, wire the funds into the account in the name of the new LLC and then we close on the property.
Once the property is owned, RE Management updates the investors weekly with an email of everything that happened for the week prior and what’s expected in the week to come. Investors have the opportunity to shadow the “managing member” of the LLC or can take no involvement whatsoever. It’s really up to the investor.
Most projects take 6-18 months to complete depending on the type of investment. REM normally looks for an annual rate of return of 12%-20%, but all investments vary and change based on market conditions at the time of the investment. You can review some past projects REM was the managing member on along with the returns by clicking on the link below:
http://remanagement.com/opportunities/past-projects/
- We find the property and manage the entire process for you as an “Individual”
There are investors that are not interested in partnering on a flipping project with a group of investors, but instead, would rather us find the property just for them. We would basically act as your real estate broker, find the property, and then manage the process for you.
We start with having you sign an “Acquisition Agreement”.
The Acquisition Agreement is between the “Investor” and RE Management (“REM”), an affiliate company that manages the process.
The “Investor” agrees to deposit a small amount of money in the bank that would allow us to use it for earnest money when a deal is found, setting up an LLC (Limited Liability Company) and for marketing to find the property. Typically the amount is $25,000 depending on the area we’re servicing for the client.
The second thing that is needed from the investor is to show “proof of funds” of at least the amount that it will cost to purchase the property and to do renovations. If the investor is not using all cash, we would need a letter of approval from the bank on the portion they would be financing.
Once this agreement is fully executed, the purchasing funds are verified and the initial funds are deposited, REM immediately starts identifying a possible opportunity for the investor.
Once a property is identified and successfully negotiated, REM then presents the opportunity to the Investor to see if they would like to move forward on the investment. If the Investor decides not to proceed, REM takes the opportunity to the next investor in line.
The order of investors is based on a first come-first serve basis. REM accepts 10-acquisition agreements at a time. As an example, if the investor signs acquisition agreement #6 and REM has already sold investment opportunities to investors 1-5, the next opportunity secured would be presented to the investor #6 first. If they turn down the project, REM would go to investor #7. If he or she were to accept, the next home REM secures would be propositioned back to investor #6. If they were to say no again, REM would propose it to investor #8, and so on.
REM puts the investors through a rotation of no more than 60 days. If the Investor decides not to go forward with any of the offers presented to them over the course of the sixty-day period, the initial funds are returned to them in full minus $2500 for acquisition marketing. If there are no offers presented, there will be a complete refund without any fees subtracted.
If the Investor decides to redeem his or her $25,000 and then wants to participate in a future REM investment, they would enter the rotation at the bottom. On the other hand, there may be situations where REM agrees to extend an investor a second-sixty day period without dropping in the rotation based on case-by-case circumstances.