... Continued from back
investment. Open-ended funds raise money by selling shares of the fund to the public. The fund manager earns income by collecting fees from the purchase of shares or a percentage of the overall lump sum. You could also collect commission based on your performance with your investments. Open-ended funds are consistently and continuously managed. You source, purchase, and manage the real estate investments and are responsible for the financial outcome of the fund. Sometimes when an open-ended fund has grown too large, a fund manager will decide to close the fund to new investors. On occasion, they may even close new investments to existing investors. This only happens if the fund performs extremely well and there is a rush for shares and profit. The type of fund you choose depends on your eventual purpose. A fix-and-flip fund, for example, invests money into single-family homes, fixes them up, and then sells them again for profit. These are a great fit for open-ended funds. If your fund expects to have a large number of investors with many buying and selling opportunities in short time periods, then it neatly matches this type. Open-ended funds are the opposite of closed-ended funds, which we will examine next month.
HARD QUESTIONS YOU MUST ASK BEFORE INVESTING IN COMMERCIAL PARTNERSHIP DEALS PART 2 Over the last few months, we’ve covered the most important questions you need to ask before investing in commercial partnership deals. Real estate is a wealth creator, but it’s also full of scams that will lead you to failure. Before investing in any deal, make sure you have all the information by asking these questions. IS THE OPERATOR OVERPAYING FOR THE ASSET? If your operator isn’t using any of their own money, what do they care if they overpay for the asset? If your operator has no stake in the deal he has sold you and others, he doesn’t really care if he overpays. And that is one of the biggest dangers in the industry. HOWMUCH LEVERAGE ARE THEY USING? Leverage has always been referred to as “the juice” on the street. Leverage is good sometimes, but if your operators are using too much of it, they’re probably trying to use that juice to make a marginal deal look like a home run. This leads to higher prices than the property is worth. It will be problematic to sell such as an asset in the future, and you may not be able to ever recover your initial investment. WHAT OTHER ASSETS DOES YOUR OPERATOR CURRENTLY HAVE? The primary reason for asking your potential fund managers about the other assets they currently have under management is to determine their level of expertise. Ask to know the intention of your operator’s crowdfunding exercise: Are they raising money from you to pay off legacy assets that are not that good, not as desirable, and not performing that well? Are they paying off their previous bad investments with the new money they have raised from you and others? These questions are critical. DO THEY HAVE PARTNERS? Don’t hesitate to probe your potential operators until you get a satisfactory answer concerning these questions: Do you have partners? If yes, do you have a partnership agreement or a document that clearly defines your working relationship? The best- case scenario is a couple of experienced operators working together after a long time off. The last thing you want is a bunch of folks who haven’t worked together before. Husband and wife teams are red flags too. No one wants to miss out on a great deal. Real estate is a competitive industry. If you’re caught sleeping, you’re going to miss out. But this doesn’t mean you should act without thinking. Grant yourself some time to ask these questions and feel out a deal before you commit to something big.
3 www.TheCommercialInvestor.com
Made with FlippingBook - professional solution for displaying marketing and sales documents online