| Some of the other things to avoid in terms of your | | | | Again, your private lenders may not necessarily be real |
| business plan are what to do during a business | | | | estate investors. Don't necessarily assume that. The |
| downturn. If our environment today doesn't teach us | | | | private investor could just be a businessperson. It could |
| this, you have got to plan and understand what | | | | be a retired person. I have retired nurses as private |
| happens in a worst-case scenario. | | | | lenders. They don't know the first thing about real |
| Making the Numbers Work during a Business | | | | estate. That's not what they're into. They're looking for |
| Downturn | | | | a higher return on their money than they're currently |
| With private lending, the scenario that you have got to | | | | getting at the bank or the CD or the money market, |
| explain to people is what the house is going to rent for, | | | | but they do not want to become real estate experts. |
| and if a private lender is involved in it what his interest | | | | They're assuming that I'm the real estate expert. They |
| payments are going to be each month. Let's say to | | | | don't want to have a business plan that has a lot of |
| make the math real simple a private investor lends you | | | | lingo in it and a lot of language about lease options and |
| $100,000 and let's just say at 10% to make the math | | | | all that stuff. Just be careful on how much lingo you |
| easy, so, $10,000 a year, $850 per month. | | | | use. Keep the language fairly simple so a non-real |
| That investor is going to say, "The interest on my loan | | | | estate investor could at least understand it and |
| is going to be $850 per month." You need to be able | | | | appreciate it. |
| to demonstrate that once you've got that property up | | | | Lack of Attention to Detail |
| and renting that you're not only going to be able to | | | | Probably the last thing, which is true of a lot of things in |
| afford his $850, but obviously you're going to be able | | | | life, believe me, is attention to details. You'd be amazed |
| to afford to pay the taxes and the insurance and all of | | | | at how many resumes I get. I get a lot of resumes in |
| that. You would be able to demonstrate that the rent | | | | my business, and how many misspellings are on |
| maybe is $1,100 or $1,200, but even if you had to | | | | resumes and formatting mistakes are on resumes. |
| accept a much lower rent, let's say $1,000 on that | | | | Business plans are no different. We get business plans |
| particular property just by way of an example, but that | | | | with misspellings. We get business plans where the |
| $1,000 worst-case scenario still covers that private | | | | column numbers don't add up. |
| lender's interest payments. You've got to bring that | | | | Proof the Business Plan |
| home to that person. | | | | You have to believe in yourself and your business |
| You've got to be able to demonstrate, "Hey, I think with | | | | enough to spend the extra time and proof your thing. If |
| the market right now it could rent for $1,200, but I | | | | you need to, have two or three other people proof it. |
| understand it's a weak market. Maybe I can only rent it | | | | Make sure that enough attention to detail is spent to |
| for $1,100. Maybe I can only rent it for $1,050. Maybe I | | | | make sure spelling and footing mistakes are all |
| can only rent it for $1,000. But even at that number, | | | | removed from your plan. Obviously, as an investor, if |
| $1,000, I can still make your payment, and I can still pay | | | | I'm sitting there and your columns don't add up, it's going |
| the property taxes and the insurance." You've got to | | | | to concern me that your attention to detail isn't going to |
| be able to demonstrate that, and that's a possibility and | | | | be particularly high. Again, don't let simple mistakes like |
| there's nothing wrong with bringing it up and telling them, | | | | that catch you. Spend some extra time. You can have |
| "Weird things happen, the markets go crazy, but even | | | | me proof it. You can have somebody else proof it, |
| in the worst-case scenario I can still cover your | | | | whoever. Just make sure that the whole thing is |
| payments." Be able to demonstrate that as part of | | | | thought through and somebody else reads it to make |
| your business plan. | | | | sure it makes some sense. Those are some big |
| Using Fancy Language | | | | mistakes, or big errors, that we see quite a bit. |
| The other thing we see a lot is using fancy language. | | | | |