Table of Contents
Pg 2
Preface
Pg 3
Introduction
Pg 5
Game Plan 1: Proceed With Caution – Soliciting Funds Legally
Pg 8
Game Plan 2: Take The Ball – Network & Engage
Pg 12
Game Plan 3: Activate Secret Weapon – Play Cashflow 101
Pg 15
Game Plan 4: Defend Problems – Practice 70/30 Rule
Pg 18
Game Plan 5: Structure A Winning Team – Profit Analysis Quadrant
Pg 23
Game Plan 6: Smart Offensive Moves – Refinancing & Equity Partners
Pg 26
Game Plan 7: Think Further Down The Court
Pg 28
Resources
Pg 29
Glossary
Pg 31
Answer Key
Pg 35
License Agreement & Copyright
1
Preface
Preface
I recall spending long nights implementing strategies that would only
serve as “quick fixes” for the obstacles Popi and I endured. Here’s a
quote written by an Italian philosopher:
“Entrepreneurs are simply those who understand that there is little difference
between obstacle and opportunity and are able to turn both to their advantage”
– Niccolo Machiavelli
Entrepreneurs are not born. Entrepreneurs are made and I am determined to use the self-education I was given to transform myself into
a real estate entrepreneur. Through consistent hard work and relentless dedication, I gained the knowledge and experience required to
solve problems for real estate investors. As an entrepreneur, I was
able to turn the obstacle of not having money into an advantage – I
raised the capital required to purchase real estate. As you read this
manual, I would like for you to devote time to implement a winning
play for each opportunity you encounter as well as each obstacle.
I want to thank my devoted wife, Popi, for being by my side through
the good times and the difficult ones. I also want to thank my lovely
children Ayanna, Jaslene, Jordyn, and Justice. Each day I pray that the
road I pave now will aid in your journey to good health and prosperity. I hope that this journal nourishes your thoughts and helps you to
achieve your goals.
Kind regards,
J. Massey
2
Intro
Introduction
My success as a real estate entrepreneur is in direct correlation with
my ability to raise private capital. I ‘ve successfully completed hundreds of transactions across eight states by way of using “OPM” –
Other People’s Money. You may ask yourself, how is this possible?
Well, I sell my real estate expertise as a service to solve challenges
(knowledge, expertise or time) for investors – in exchange for capital.
You will learn more about this later.
Before I share the playbook with you to raise private capital. I would
like for you to understand why raising private capital is beneficial to
your success as an real estate entrepreneur and also how raising private capital will leverage your ability to stay in the game longer.
Banks provide the easiest way to borrow funds. People skills aren’t
required. All you need to know to apply for the funds is how to fill out
paperwork. And, sure, banks have plenty of available funds.
Nevertheless, I still wholeheartedly favor investing time to locate investors for the purpose of raising private capital over borrowing funds
from banks – PERIOD.
Why? A bank typically lends out $3M per person. That’s your maximum loan amount. Thereafter, the bank will discontinue your credit.
Lending more than $3 million begins to become what the bank calls
an adverse risk, where one person or entity has too much money and
that becomes a particular liability to the bank.
I just completed one of my best financing deals, a 182-unit building
that has a $1.45 million loan at 6%. The capital was not borrowed
from a bank. The loan was from a person.
I would rather pay interest to an individual, because that individual
will have a vested interest in the deal. Furthermore, a person will be
willing to introduce you to another person with more money. After
3
Intro
all, birds of a feather flock together! Think about it... if you do a deal
with a person that has $1.45 million, what is the likelihood that this
person’s friends have the same types of funds to invest?
Now, apply that same ideology to Bank of America. What is the likelihood that Bank of America will say, “You know what? Our other bank
across town has another $1.45 million. I would like to introduce you
to a loan officer over there too.” I can assure you that this will not
happen.
Also sometimes hard money interest rates are higher than bank
loans. However, if you decide to borrow from a bank for 10 years
to take advantage of a 5% interest rate vs. 8% of hard money. What
happens when the bank says, “No more”? Who will you borrow from
then? What referral network have you built? Who have you helped
that wants to refer their friends and family members to you? Yes, you
saved three points, but what happens when the bank changes their
credit requirements? Now what are you going to do?
In closing, I approach wealth as a team sport. I don’t care how good
your credit is at some point dealing with banks, your credit line will
max out. It’s the proverbial guy at the bar that has way too much
to drink and gets cut off. The bank is going to cut you off. There are
more people in this world than there are banks. You just need to get
in front of the right people to raise capital.
Now if you are looking for an easy way to have access to up to $3
million dollars or save a few points on interest rates, I’m delighted to
have helped you arrive at the conclusion that borrowing from banks
will work to your advantage. For those that seek longevity in real
estate, put your game face on. Your game plan to raise private capital
begins now.
4
Game Plan 1 - Proceed With Caution: Soliciting
Game Plan 1
Proceed With Caution:
Soliciting
I personally do not advertise or publicly solicit to raise capital. As a
matter of a fact, solicitation of investment funds through any form of
advertisement was illegal until recently. In 2013, the Securities Exchange Commission (SEC), voted to pass a law to allow investors to
publically solicit investment funds. However, ONLY accredited investors are allowed to give funds. Meaning you can only receive funds
from accredited investors through public solicitation.
In This Section
You learn that there are
ways not to ask for private
capital, so you can stay out
of hot water.
Does this mean that there are people who are currently advertising
illegally? Yes. I receive solicitations all the time from investors asking
for money, promising returns and all kind of other things. Communications such as these are clearly securities violations and I do not
want you to be the guy or girl that gets busted by the SEC. Please
work with a securities attorney to understand what is and what are not securities
violations.
While there have been changes to how we real estate
Accredited Investors
investors can advertise, you need to be very careful.
A lot of investors are actually breaking the law by
advertising incorrectly. Don’t be one of them. Until
you understand the SEC rules around publicly soliciting funds, it’s best to stay away from that path. There
are plenty of ways to raise private capital without
running the risk of security violations.
Under the Securities Act of 1933, a company that offers or sells its securities must
register the securities with the SEC or find
an exemption from the registration requirements. The Act provides companies with
a number of exemptions. For some of the
exemptions, such as rules 505 and 506 of
Regulation D, a company may sell its securities to what are known as “accredited investors.”
The federal securities laws define the term accredited investor in Rule
501 of Regulation D as:
1. a bank, insurance company, registered investment company,
business development company, or small business investment
company;
5
Game Plan 1 - Proceed With Caution: Soliciting
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment
decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with
assets exceeding $5 million;
4. a director, executive officer, or general partner of the company
selling the securities;
5. a business in which all the equity owners are accredited
investors;
6. a natural person who has individual net worth, or joint net
worth with the person’s spouse, that exceeds $1 million at the
time of the purchase, excluding the value of the primary residence of such person;
7. a natural person with income exceeding $200,000 in each
of the two most recent years or joint income with a spouse
exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated
person makes.
For more information about the SEC’s registration requirements and
common exemptions, read their brochure, Q&A: Small Business & the
SEC. - http://www.sec.gov/answers/accred.htm
6
Game Plan 1 - Review Questions
Game Plan 1
Review Questions
1. What does SEC represent?
______________________________________________________
2. Who should you consult to ensure you are not breaking any securities violation?
______________________________________________________
3. Legally, what type of investors are you able to receive funds from?
______________________________________________________
4. Give three examples of accredited investors:
________________________________________________________
________________________________________________________
________________________________________________________
7
Game Plan 2 - Take The Ball: Network & Engage
Game Plan 2
Take The Ball:
Network & Engage
To date, the occupations of the investors I’ve worked with to raise
private capital are as follows: a nurse, a sound technician for a TV
show, a special effects technician for a TV show, former owner of a
car dealership, owner of an online business, owner of a company that
builds horse stables, a recruiter, owner of a yoga studio, one works
at a pharmacy, and another is retired and drives around in an RV, so I
never know where he is at all. In fact, I’ve never met him. He is a living example of a referral earned by working with a person as opposed
to a bank.
In This Section
You learn how properly
networking with other
investors gets deals done.
You’ll also learn two of the
most powerful words I use
when talking to investors.
Investors are all normal people that come from all walks of life. Some
are heirs and trust fund babies. Others, such as myself, decided to
work hard to buy that silver spoon so that my family could have more
leverage in life. Investors don’t all look alike
or talk the same. We, however, do have
one thing in common – we find value in real
Investors come from all walks of life. Your success
estate. Investing our time or money in real
as a real estate investor boils down to your ability
estate is the solution to a problem (rememto speak comfortably with anyone. To get others
ber we will discuss this more later).
to share your vision means you’re going to have to
Your success and/or failure will be measured by your ability to network. Talking
with people, informing them of what you do
and building relationships plays a vital role
in how much and how often you raise funds.
put yourself out there and talk to people. Practice a
short “elevator pitch” to get the ball rolling. That’s
a few lines that describes what you do and how you
want others to be involved.
When appropriate, you should ask each and every person you come
into contact with this question – “Have you ever considered getting
involved in real estate investing?” I stated when appropriate because
every encounter is not always the perfect opportunity to discuss
investing. You wouldn’t want to be the guy or girl at a funeral asking
people if they’ve ever considered real estate investing. I surely do
not want to get a email from you telling me that I ruined your life by
telling you to ask this question to every person you meet. Please use
8
Game Plan 2 - Take The Ball: Network & Engage
good judgment.
While networking your conversation should flow like this.
“Have you ever considered getting involved in real estate investing?”
Listen. “Really? Why?”
The answer to, “Really? Why?” will give you all the reasons why they
will or will not do business with you and that’s all you need to know.
You shouldn’t be concerned at this point what the return is and all
that other stuff relating to investing. You’ll eventually get to that. The
most important piece is the answer to the “Really? Why?” question.
Without that answer, there is no deal.
With following this simple script and listening process, I can easily determine if a person has access to capital. Let’s take a look at the two
scenarios listed below.
Scenario 1
Me - “Have you ever considered getting involved in real estate
investing?”
“No, I haven’t.”
Me - “Really? Why?”
“Well, I don’t know what I’m doing, I have no money, I don’t
have time, etc.” What that comes down to is they’re telling me
all of reasons why they cannot do business. But those also can
be the very reasons why they should do business.
When I hear “no” answers like that, I say, “Okay, does that
mean then that you don’t think real estate has anything for
you?” There could be a yes or no answer to that.
Scenario 2
Me - “Have you ever considered getting involved in real estate
investing?”
“No, I haven’t.”
9
Game Plan 2 - Take The Ball: Network & Engage
Me - “Really? Why?”
“I don’t like tenants” or “I like real estate but I don’t have
time,” or “Yeah, real estate would be great but I don’t want
to get on a plane and do all that work,” or “Yeah, real estate
would be awesome but who wants to manage property”?
The second scenario are the answers you are listening for to find potential investors. You are listening for how they have a problem with
knowledge, time, money or credit and how your service can actually
solve one of those four areas for them.
You are primarily listening for things that say, “I don’t have any time,”
“I don’t have any knowledge,” or “I don’t want to do the property
management,” but they typically are also familiar with things like cash
flow and the concepts of cash flow.
When you hear answers like, “I just don’t know what I’m doing.” or “I
don’t have any money and I don’t have any credit,” that’s a completely different prospect for you.
You need to do the digging to find out what they mean by why they
have or why they will or won’t get in business right now with you. I’ve
been using the same script for over five years now. I don’t intend on
changing it, because so far, it seems to have worked out pretty well
and I plan to keep using this same script.
10
Game Plan 2 - Review Questions
Game Plan 2
Review Questions
5. Your success and/or your failure will be measured by your ability to
________________________________________________________.
6. List primary reasons that a prospect may give that serves as an
indicator that they are likely to have funds to invest:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
7. List the phrases given that indicate a prospect may not have capital
to invest:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
8. Without looking at the manual, write the Scenario 2 script and
possible answers.
Me Prospect Me Prospect -
11
Game Plan 3 - Activate Secret Weapon: Play Cashflow 101
Game Plan 3
Activate Secret Weapon:
Play Cashflow 101
You now know that my list of investors are all normal people that you
could easily pass in the grocery store or see at church. They don’t all
look the same or have any one particular occupation. I met most of
them by investing time with them playing Cashflow 101 game.
The Cashflow 101 game is a simulation of actual real estate transactions. While playing with potential investors, each time you see the
simulator do something that you know a real estate entrepreneur
does in real life you make reference to it. You may mention, “Hey!
What you just did in the game, I know a guy who knows how to do
that. Isn’t that neat?” Then you keep playing the game.
In This Section
You learn how playing a
fun, educational board
game can change your life
and the lives of all who
play.
If you keep doing that enough times and continue to let people know,
“Yeah, this is what I do each day” or “I know
someone that does this in real life” or “What
you just did is what I do in real life.” EventuWatch people as they play Cashflow 101 and you will
ally they will ask you, “How did you learn to
see how they are as investors, how they feel about
do what you do?” or “How can I participate
and handle money, work, life’s challenges and more.
with you and do what you do”? or “How can It’s up to you as the leader of the game to help them
I meet the guy that you know that does this
understand new ways of looking at investing and
in real life”?
how using their money differently can get them out
of the rat race and into their dream lives.
This is the reason why you must play Cashflow to teach everyday working people the
advantages of owning or investing in real
estate. Remember, he or she who educates,
dominates. What happens is that they depend on you to guide them
through this process because they want to do what they did in the
game. They think, “It worked in the game then maybe it will work in
real life.”
They depend on you to draw that bridge so that they can see the
investment opportunity clearly. Once they understand the concept in
the game you will have so much less explaining and convincing to do.
That’s your job. That’s the work.
12
Game Plan 3 - Activate Secret Weapon: Play Cashflow 101
Learn to listen for clues that reveal their investor identity. While
you’re playing the game you should listen and look for the clues that
will tell you what their experience is and how long they might like
being involved in a deal. Once you know more about their investor
identity, it’s very easy for you to say, “Hey, I saw what you did in the
game. Would you like to do that in real life?” Or you ask the entire
room, “Does anyone have any interest in doing anything that they did
in the game in real life? Yeah? Cool. If you want to learn how to do
what you did in real life, by a show of hands, come to this location on
this date at this time.”
In the meantime get back to playing. “Eat the chips and please don’t
spill the drinks on the board game.” Keep it that simple. That’s it.
Then you set up a time to sit down with them, one on one, at a presentation, whatever your process you choose. I don’t care what the
process is. What’s important is it should be tailored to their issues,
their problems and how you can help them do what they saw in the
game to solve their problem.
13
Game Plan 3 - Review Questions
Game Plan 3
Review Questions
9. What advantages are associated with Playing Cashflow 101?
________________________________________________________
________________________________________________________
________________________________________________________
10. What actions does playing Cashflow 101 stimulate players to take?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
11. What is your main reason for playing Cashflow 101?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
12. How should you close on your potential investors after playing
Cashflow 101?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
14
Game Plan 4 - Defend Problems: Practice 70/30 Rule
Game Plan 4
Defend Problems:
Practice 70/30 Rule
While playing Cashflow 101 we don’t spend much time talking about
rates of returns, interest and other investment related topics. That’s
not where the magic is. The magic is in solving the problems of the
players. They have problems and you can help solve them.
In This Section
You learn to speak less and
listen more. It’s a secret to
success.
Their problem could be, “All I have is $100,000. I don’t have the time
to do anything with it. Can you do something with it”? Since doing
business with you depends on their problem, your job is to find out
and help them by providing a solution.
Real estate is a service business, and you are a service provider. Because real estate is a service business and you are a service provider,
your service solves their challenges: knowing, time, money, or credit.
Remember, I mentioned this in Play 2 (You
are primarily listening for things that say,
“I don’t have any time,” “I don’t have any
knowledge,” or “I don’t want to do the
property managemen” but they typically are
also familiar with things like cash flow and
the concepts of cash flow). You must apply
the 70/30 rule in order to find out their
problems.
Learn to be an excellent and active listener. The result can surprise you. By truly listening when others
speak, you’ll learn their reasons to invest or not to
invest. You build trust and you can answer people’s
concerns, because you aren’t just responding with
“standard” answers. It is very important to practice
integrity in all you do, including conversations with
investors.
The 70/30 rule is simple: they talk 70% of
the time. In order to do that, you must learn
to ask questions and listen. The majority of my real estate deals solve
a problem or provide a solution.
Potential investors need to have emotional, deep reasons why they
will invest in real estate. Another name for this is pain. Let me be very
clear in explaining this part. When I say “do business” I mean that
they need to be willing to make a change because they have been
living with whatever pain or problem for awhile. They’ve got to be
15
Game Plan 4 - Defend Problems: Practice 70/30 Rule
willing to make a change. Remember this rule: you inspect what you
expect. You’re going to inspect if they are willing to make a change.
Secondly, are they willing to make a change now? Then are they willing to make the change with you as the one leading them through the
process? Or they could be willing to make the change, they could be
willing to make the change right now but they might not like you and
not want to do business with you.
Learn to ask questions and find out what they’re looking for. You
are asking them to give up money. Their reason for agreeing to give
you money is not to solve your problem. They don’t care how much
money you need. They’re looking to find a solution to their problem
or pain. If you approach them as someone who will cure their pain,
they’ll do whatever they have to do to solve their problem. Problems
come in the form of:
• Taxes
• Protecting Money
• Growing Money
You should also ask anyone who has a real estate license or who
works with real estate licensed individuals (especially those that list
properties) the same question: “Do you have anything that could be
seller financed?” Seller financing is a clear indication of a problem.
The seller is so eager to sell his/her property that they will provide
financing to make the deal go through.
While you’re doing all of these things, you should maintain your integrity so that at any point in this process, you can ask for a referral.
If you can do this, your marketing costs drop to zero, or near zero and
you become known as a problem solver. People with money, problems and property find you.
16
Game Plan 4 - Review Questions
Game Plan 4
Review Questions
13. List three forms of problems investors want to solve:
________________________________________________________
________________________________________________________
________________________________________________________
14. What are the three components needed for an investor to want
to do business?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
15. Explain the 70/30 rule and why this rule is important:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
17
Game Plan 5 - Structure A Winning Team: Profit Analysis Quadrant
Game Plan 5
Structure A Winning Team:
Profit Analysis Quadrant
Whether it’s one person or 20 people involved in the same deal, it is
vital for everyone’s investor identity to be the same for the deal to
work. Each deal is structured in such a way that helps each investor
benefit from the deal according to their investor identity. If all investors do not match, the deal will become a bad one for someone at
some point in time.
In This Section
You learn how defining an
investor’s identity helps
you provide terms that
serve them most.
You must figure out what your investor needs or what they don’t
need in order to make the deal work. I prefer to structure a deal
based upon the needs of the investor by using the Profit Analysis
Quadrant to figure out what benefit they are looking for and how my
deal will solve their problem by giving them what they need.
Below is the Profit Analysis Quadrant.
18
Game Plan 5 - Structure A Winning Team: Profit Analysis Quadrant
As you run your Profit Analysis Quadrant, you have the ability to
understand who is getting what benefit. Regardless of the number of
investors, you must find out each investor’s identity and which benefits they need. For example, a group of people that need cash flow
will fit into the Cashflow Quadrant. A group of people that need the
depreciation benefit will fit into the Depreciation Quadrant. The Profit Analysis Quadrant, gives us an understanding of the numbers and
the benefits within the deal.
Benefits for each Quadrant
Appreciation ----> Growth Over Time
Amortization ----> Principal pay down
Depreciation ----> Solves tax issues
Cashflow ----> Needs income
Appreciation is defined as the increase in value that occurs over
twelve months. This is usually most related to the purchase price. You
buy it for $1.8 million and you sell it five years later for $4 million.
That means you’ve created $2.2 million of
appreciation or growth.
Amortization is the principal pay-down.
You can use many different forms of a loan
but an interest only loan has zero dollars of
principal pay-down. Loans without interest
fully amortize and has principal pay- down.
Every investor will fall into one or more of the quadrants. It’s up to you to ask the right questions that
tell you where they fit best. In turn, you can serve
their needs better as a real estate investor. It’s a
great way to build greater rapport and create longterm relationships with every investor.
Banks value the amortization benefit. They
only want that quadrant. They’d gladly give
up the appreciation, deprecation, and cash flow. They only want interest and the amortization quadrant.
Amortization is also the realm of retirement plans. I love retirement
plans inside the amortization space. Retirement plans are best used
in the amortization quadrant and appreciation quadrant. Retirement
plans are designed to defer those two types of gains. Retirement
plans can use deprecation but they don’t use it as efficiently. Retirement plans can use cashflow. In my opinion cashflow is the least
efficient way to invest a retirement plan.
19
Game Plan 5 - Structure A Winning Team: Profit Analysis Quadrant
Deals using retirement plans are typically are structured to give amortization and/or interest only, or some sort of appreciation. A wise investor would give more appreciation and receive more of the deprecation and cash flow as it suits your investor identity. Deals structured
outside of a retirement plan may require just as much appreciation
depreciation. The key is finding out the problem then applying the
components in the profit analysis quadrants to solve the investor’s
problem.
Depreciation typically involves an individual with a tax issue. Typically
the people with large amounts of money outside of retirement plans
need tax benefits. Therefore they will fit into the depreciation quadrant and cash flow quadrant.
Cashflow typically involves the need of income. Retirement plans are
the worst in cash flow when someone is still in the pre-retirement
stage. I found this out the hard way because I structured so many
deals and gave away cash flow to people who had retirement plans.
The investors never cashed the checks because they did not plan to
do anything with the invested money.
This was a challenging learning curve because I gave up cash flow that
I didn’t have to give up. I could have given them more appreciation
instead. I would have made less on the appreciation but I would have
had more cash flow today (which is what I would rather have). Always
remember, money now is better than money later. You would need to
understand a financial calculator in order to understand this concept.
If you do not have a 10BII calculator or some other financial calculator then you are ill-equipped as an investor, in my opinion. That’s like
a carpenter who says, “I don’t own a hammer.”
20
Game Plan 5 - Review Questions
Game Plan 5
Review Questions
16. Fill in the Profit Analysis Quadrant.
17. Why is the Profit Analysis Quadrant important?
________________________________________________________
________________________________________________________
________________________________________________________
18. Which quadrant best fits the needs of banks?
________________________________________________________
________________________________________________________
________________________________________________________
19. Retirement plans are structured to provide
____________________.
21
Game Plan 5 - Review Questions
20. Define each quadrant.
Appreciation
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Amortization
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Depreciation
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Cashflow
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
22
Game Plan 6 - Smart Offensive Moves: Refinancing & Equity Partners
Game Plan 6
Smart Offensive Moves:
Refinancing & Equity Partners
After you have successfully managed to legally raise funds through
networking with tons of people, playing Cashflow 101 and qualifying them according to their investor identity there is one last play to
make. This last play, if executed strategically, will determine if you
possess the ability to “roll with the big boys.” As an investor, you
should always strive to always improve the structure and benefits of
your deals. In laymen’s terms, attempt to make one deal a better deal
over and over and over again.
In This Section
You learn a new way of
looking at refinancing and
how playing well with
others matters.
You absolutely should refinance your properties. Refinancing is not
a matter of “if I will refinance,” but rather it is a definite matter of
“when I refinance.”
Hopefully, you did not think of going to a
bank for refinancing as your first option. Remember people have money just like banks.
Actually, banks only have money because
people house their money in banks. Let’s
say I started a deal with private capital at
10% in the amortization quadrant. Interest
only.
Refinancing is not a matter of “if I will refinance,”
but rather “when I refinance.” Refinancing makes
great business sense as a real estate investor. The
math never lies!
Because people are my first option as opposed to banks. I will find
another person who has a CD and is willing to accept 6% interest. I
start the deal with a person at 10% private in the amortization quadrant, interest only but what I do to refinance is find another person
who has a CD and is willing to accept 6%. I use that same exact asset
and pay the person that I was paying 10% back all of their funds. Now
I have this same building again at 6%. I just refinanced my own deal
and negotiated all the terms. I get so excited about transactions like
this! This is how I spend my days.
Another clever move to make when using private capital is to recruit
equity partners. There are two types of funding in general – equity
23
Game Plan 6 - Smart Offensive Moves: Refinancing & Equity Partners
funding or debt funding. I suggest you keep them separate. You can
have equity and/or debt funding.
Debt funding is only in the amortization quadrant. However, equity
funding usually involves all four quadrants and offers interest in the
property.
I’ll use the example of the 182-unit building. This deal was done in
the following fashion. The investment was $500,000 for 20%. That
20% wasn’t interest on the $500,000. Instead it was 20% interest in
the building or as an equity partner. As an equity partner, the person
who gave the $500,000 gets a piece of all four of the quadrants – all
four of the benefits – because that’s what the investor wanted.
That’s part of the reason why the deal was done that way, plus I
didn’t want an additional $500,000 of debt service. There’s a difference between variable expenses and fixed expenses. What’s variable
is whether or not you have to pay. A fixed expense is a mortgage or a
note. It has a payment due every month no matter what, regardless
of performance. A variable expense does not. If it doesn’t perform
well that month, there is no payment. That is the major advantage of
an equity person. They understand that they’re getting those other
three benefits. They may not get money every month based upon the
performance. Depending on the size of the project, you may prefer
variable versus fixed. It’s definitely something that you want to remember and continue to think about.
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Game Plan 6 - Review Questions
Game Plan 6
Review Questions
21. How does fixed expenses differ from variable expenses?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
22. What benefit do equity partners receive?
________________________________________________________
________________________________________________________
________________________________________________________
23. Which quadrant will you find debt funding? __________________
________________________________________________________
24. Which quadrant will you find equity funding? ________________
________________________________________________________.
25. Which expense is based on performance? ___________________
________________________________________________________.
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Game Plan 7 - Think Further Down The Court
Game Plan 7
Think Further Down The Court
If you haven’t learned anything for me yet, reread this manual later
but learn this now: questions are the answers. Before I close I would
like to make sure you think long term when raising private capital.
I am going to give you a question to ask investors that will help you
secure funds long term to move from project to project.
In This Section
You learn to how to get
investors to see the longterm benefits of letting
you use their money.
Before I give you the magic close question, let’s assume this.
James has $100,000. I do two things. I educate James on what I do
as an real estate entrepreneur. “James, there are two concepts out
there. There are piles of money and then there are streams of cash.
I’m not the guy that you give your $100,000 to and nine months later
you get $125,000 back. That’s not me. I’m the guy that you give your
$100,000 to and what I can do is pay you
$10,000 a year for using that $100,000”.
Here is the secret sauce – “I have one quesIf you’re chatting with an investors about using their
tion for you James. When would you like me money to fund a deal, ask them, “When would you
to stop sending you the $10,000 check?”
like me to stop sending you the check?” The an-
swer’s likely going to be “Never.” What a great way
I’ve not had anyone say anything other
to get them to see the long-term rewards.
than, “Never.” How long is never? I consider
that to be long term so they never want me
to stop sending their check. That means I
keep using their funds from project to project.
Inside of my contracts and notes and the actual documentation, I
use something that’s very quick and I love a lot. It’s called the Substitution of Collateral clause that allows me to not even have to “pay
off” that money. I can just take it from building to building to building
under the same terms, over and over and over again.
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Game Plan 7 - Think Further Down The Court
I hope that this manual increased your level of confidence to go out
there and raise private capital. Its time to create your success cycle
- Confidence creates activity. Activity creates results. Those results
create success, which creates more confidence and keeps going over
and over again. Go out and talk with people. You will develop a sense
of confidence and develop a prospecting system by just talking. You
may raise a sum of $1,000 from 10 people or $10,000 from one person. What is important is that you take action and move at the speed
of instruction. Today is not too soon to hear good news. Please share
your success stories on www.cashflowdiary.com. As Jim Rohn says,
“Don’t wish it was easy; wish you were better.”
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Resources
Resources
•www.foreclosureradar.com
•www.meetup.com
•www.bid4assets.com
•www.ebay.com
•www.facebook.com
•www.Linkedin.com
•www.Twitter.com
•www.narpm.org - National Association of Property Managers
•www.realtor.org - National Association of Realtors
•www.nolo.com
•First American (title company)
•www.realestatetools.com
•www.Dropbox.com
•www.SugarSync.com
•HP 10B II Calculator
•www.marketcircle.com - Daylite
•www.loopnet.com
•www.cbre.com
•www.rentometer.com
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Glossary
Glossary
Accredited Investor – An investor defined by the
federal securities law.
Appreciation – An increase in the value of an asset over time. The
increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease
over time.
Amortization – The paying off of debt in regular installments over a
period of time. The deduction of capital expenses over a specific period of time (usually over the asset’s life). More specifically, this method measures the consumption of the value of intangible assets, such
as a patent or a copyright.
Cashflow 101 – An educational tool in board game format designed
by Robert Kiyosaki (author of Rich Dad, Poor Dad), which aims to
teach the players concepts of investing by having their money work
for them in a risk free setting (play money) while simultaneously increasing their financial literacy and stressing the imperative nature of
accountability. The board game is based in a financial and economic
simulation environment.
Debt funding – Debt funding is a basic loan / credit debt, which requires a regular payment schedule of interest and principle.
Depreciation – A method of allocating the cost of a tangible asset
over its useful life. Businesses depreciate long–term assets for both
tax and accounting purposes.
Equity funding – The process of raising capital through the sale of
shares in an enterprise.
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Glossary
Equity partner – A partner in a partnership who is a part-owner of
the business , and is entitled to a proportion of the distributable profits of the partnership.
Fixed expenses – Expenses that continue at relatively stable levels,month after month or year after year, regardless of occupancy
levels, retail sales, or other areas of revenue, including property rent
or depreciation, some minimal level of personnel expenses, and some
minimal level of utilities. Contrast with variable expenses, which are
more or less directly tied to revenue;as revenues increase, so will the
expenses.
“OPM” – Other People’s Money.
Private Capital – A funding source derived from private sources other
than banks and other lending institutions.
Public Solicitation – A personal request for funds in a public place,
or by going uninvited to the residence or place of business of any
person. It shall not be construed to include solicitations by mail or by
telephone.
Real Estate Entrepreneur – A business professional that buys, sells or
invests in real estate for a profit.
SEC – Securities Exchange Commission.
Securities Violation – The act of making a false statement about a
company or the value of its stock, and others makes financial decisions based on the false information.
Seller financing – Financing provided by property owners.
Refinancing – May refer to the replacement of an existing debt obligation with another debt obligation under different terms.
Variable expenses – A corporate expense that varies with production
output. Variable costs are those costs that vary depending on a company’s production volume.
70/30 rule – Listening 70% of the time and asking questions 30% of
the time.
30
Answer Key
Answer Key
Play 1 Review Questions
1. What does SEC represent?
The Securities Exchange Commission
2. Who should you consult to ensure you are not breaking any securities violation?
A Securities Attorney
3. Legally, what type of investors are you able to receive funds from?
Accredited Investors
4. Give three examples of accredited investors:
Anwsers may vary. A charitable organization, bank or a natural person with income exceeding $200,000.
Play 2 Review Questions
5. Your success and/or your failure will be measured by your ability to
network.
6. List primary reasons that a prospect may give that serves as an
indicator that they are likely to have funds to invest:
• I don’t like tenants
or
• I like real estate but I don’t have time
or
• Real estate would be great but I don’t want to get on a plane
and do all that work
or
• I do not want to manage property
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Answer Key
7. List the phrases given that indicate a prospect may not have capital
to invest:
• I don’t know what I’m doing
or
• I have no money
or
• I don’t have time
8. Without looking at the manual, write the Scenario 2 script and
possible answers.
“Have you ever considered getting involved in real estate investing?”
“No, I haven’t.”
“Really? Why?”
• I don’t like tenants
or
• I like real estate but I don’t have time
or
• Real estate would be great but I don’t want to get on a plane
and do all that work
or
• I do not want to manage property.
Play 3 Review Questions
9. What advantages are associated with Playing Cashflow 101?
• Playing Cashflow 101 helps you to learn the investor identity
of the players
• The game is a stimulator and teaches real estate transactions
and terminology
• After players play Cashflow 101
10. What actions does playing Cashflow 101 stimulate players to take?
Players are stimulated to want to complete real estate transactions
they completed during the game in real life.
11. What is your main reason for playing Cashflow 101?
To network and engage with potentials buyers and investors.
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Answer Key
12. How should you close on your potential investors after playing
Cashflow 101?
Provide a location, date and time to meet with you one on one to
learn more about applying what they did during the game in real
life.
Play 4 Review Questions
13. List three forms of problems investors want to solve:
• Taxes
• Protecting Money
• Growing Money
14. What are the three components needed for an investor to want
to do business?
Investors must have pain, want a change, require the change now
and like you enough to do business with you.
15. Explain the 70/30 rule and why this rule is important:
This rule provides you with an opportunity to listen to find problems that you can solve for potential investors.
Play 5 Review Questions
16. Fill in the Profit Analysis Quadrant.
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Answer Key
17. Why is the Profit Analysis Quadrant important?
Using this quadrant, helps you to structure each deal in such a way
that helps each investor benefit from the deal according to their
investor identity.
18. Which quadrant best fits the needs of banks?
Amortization
19. Retirement plans are structured to provide amortization and/or
interest only, or some sort of appreciation.
20. Define each quadrant.
• Appreciation is defined as the increase in value that occurs
over twelve months
• Amortization is the principal pay-down
• Depreciation is typically for an individual that has a tax issue
• Cashflow is typically involves the need of income
Play 6 Review Questions
21. How does fixed expenses differ from variable expenses?
A Fixed expense is a mortgage or a note that must be paid each
month while variable expenses depend on the performance of the
property.
22. What benefits do equity partners receive?
Equity partners receive benefits from all four quadrants.
23. Which quadrant will you find debt funding?
Only in the amortization quadrant
24. Which quadrant will you find equity funding?
All four quadrants – Appreciation, Amortization, Depreciation
and Cashflow
25. Which expense is based on performance?
Variable
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License & Copyright
License
Copyright © 2013 West Egg Enterprises All rights reserved
Feel free to pass around this ebook (either separately or together as a whole, as presented
here) and freely distribute them
If you want to resell them, just email me first at:
info@cashflowdiary.com
You must follow these rules if disseminating copies:
1. The e-book must be presented entirely. No modifications allowed.
2. Don’t use any form of spam to promote this ebook.
3. Ebook must remain in electronic format. No physical copies allowed.
About Links Used In this ebook
All links are clickable to the direct cash flow diary website.
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