Dealmaking for yourself

Dealmaking when purchasing real estate or a company

The biggest hurdle people face when trying to purchase companies and real estate is the down-payment. Everyone are having a big difficulty with this. And I'm sad that they do because they miss one very vital point when looking at these two choices of investments. Do you know which one vital tool they lack?

Is it the down-payment? No
Is it bad credit? Seldom

Then what is it? Read on.

Market valuation

When you are looking for real estate (investment purpose) or companies you need to have a market valuation done in every case. Why? The easy, but not the most obvious (probably because very few people use it to their advantage) answer is: Market valuation can help you realise how much a company is really worth or how much real estate is worth. When you know the actual value of something you can actually solve much of your down-payment issues. Not always because sometimes the seller wants more than what the market valuation is showing to be true.

Example

Say you are looking too purchase a property at a price of $100.000. In this case you are required too put down 25% in down-payment. That is $25.000.

Well the problem here is (in this example) that you don't have $25.000 to put down. But you do afford a market valuation guy.

So the thing you will do in this case is to do a market valuation (expert help only) in order to see if the real estate is worth a lot more than the $100.000 the seller is asking for. If not, pass on the deal immediately.

In this case we where lucky. The market valuation (the true value) of this real estate was $200.000. What this mean is you could borrow money for the entire purchase price with a 50% LTV loan. But in order to have the bank saying yes you also need to show how you are going to pay for the bankloan.

In this case you would like to purchase this property in order to rent it out to a tenant with a big and stable salary and with excellent credit rating (because if you have really bad credit rating yourself you really need a tenant who can bail you out a little. The only way to be honest). So before you go to the bank with the market valuation you need to sign up a tenant that meets thos criterias (great credit rating and big salary).

The easiest way to have your banker believe in your proposal is to make it so safe that he would
be a total moron if he passed it up. This "proposal from heaven" works like this:

Have the bank setup a new bank account. Have the tenant pay his/her rent into this account every month and then let the banker take his cut and then pay you what is left. This way he controls the the cashflow, not you (you gotta start somewhere). This account should be a frozen account so that you would have no chance to reach this money. You gotta help the bank in order for them to help you. Especially if you are a money risk.

Hope you have learnt something from me today.