When in trouble buy something

How to get a “free” house

Rod Bryden, the 2nd owner of the Ottawa Senators (after me) told me this 25 years ago, “When I’m in trouble, I always buy something.”

Most people think if they get in trouble, sell!

But Rod is a financial genius, so he did the opposite.

Why?

Because if you have decent credit and credibility, you can always talk your way into a deal of some kind and each acquisition brings with it new opportunities–for growth, for refinancing, for mergers and acquisitions, things that’ll generate cash, and as everyone knows,

CASH IS KING [OR QUEEN IF YOU PREFER].

It works in real estate too.

When I needed a lift after the Sens went bankrupt, I bought a townhouse no one else wanted with DOM, days on market over 300. How come it was on the market so long?

Because it was owned by a hoarder and, to say it didn’t show well, would be like saying the Titanic was an unsinkable ship.

I got it for $241,250 because I agreed to take it as is/where is. After it was cleaned up and renovated (for about $45,000), it was worth about $395,000 and I could refinance it, take cash out (about $90k), et voila, I was back in business. Basically, you use an increase in leverage on your (undervalued) target to pull cash out.

Here’s a plan hatched by a coaching client of mine; I’ll call him “Brad.”

Here’s what Brad wrote me:

“What I want is this: $500,000 in cash under the following scenario.

I will be buying a house to live in for my new wife and baby and me; ideally, it’ll happen over the next few months—in a perfect world, late winter 2018.

Houses are expensive; they’re liabilities in the sense that they consume large amounts of cash and throw off no cash (although of course, there is equity built up over time and maybe you have a secondary suite or a coach house or a workshop you can rent out but that’s another story).

I want a group of investors to give me $500,000 in cash to help me buy my dream home.

The investors can protect their investment by registering a 2^nd mortgage or lien of some sort against my house in the amount of $500,000. But I make no payments on that $500,000 because it’s essentially a ‘gift.’

As long as I hit the milestones with respect to the other properties I bought, animated and manage for the investor group over a preset time period, that $500,000 is de-registered and forgiven BUT I continue to manage their portfolio ‘forever.’

I only conceived of this over the weekend, so it’s not fully thought out but essentially their investment looks something like this:

-three properties acquired for a total cost of ~$2.7 million

-downpayment and closing costs (CC) for these 3 properties are: $675,000 + CC of about $60,000 for a total of $735,000 in cash that they put up

-add in the $500,000 ‘gift’ to me and they need a total of about $1.235 million in cash.

The investors now own three properties, which they have me managing for them. They also hold an ‘interest’ of $500,000 in my newly acquired home.

The three properties I sent yesterday have an anticipated ROI that should see the investors’ commitment repaid relatively shortly; in 3 to 5 years. Add in the $500,000 ‘gift’ and their cash is returned in 5 to 7 years or thereabouts.

Ultimately my goal here is not necessarily to make a great investment for myself; it’s to make a great investment for the investors so I can benefit in an unusual way and acquire a nice home that my wife has had her eye on for some time.

Cheers, Brad”

We use variations of this all the time–scenarios where entrepreneurs put in sweat equity and get paid for it with cash and project ownership too. It’s a marriage made in heaven—entrepreneurs with skill and time but little money with investors with money but very little time.

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD, Ottawa Senators founder, Real Estate Investment and Business coach, ROYAL LePAGE Performance Realty broker, 1-613-762-8884 bruce.firestone@century21.ca twitter.com/ProfBruce profbruce.tumblr.com/archive brucemfirestone.com

MAKING IMPOSSIBLE POSSIBLE