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You managed to get a killer multifamily deal under contract but don’t have all of the money raised – what to do?

This “fear of success” keeps many newbie multifamily investors on the sidelines. They’ve been looking for deals while trying to raise money from private individuals. They come across a good deal but don’t have all of the funds committed yet.

And so they STOP pursuing the deal.

Because they’re afraid.

Watch my video below to learn why this is a mistake for at least TWO reasons

Reason # 1: They under-estimate the value a good underwritten and pre-negotiated deal.

Especially these days, finding good multifamily deals is tough. So when you have a deal that you have at least verbal agreement from the seller on a number that makes sense after rigorous and conservative underwriting, you have something of value.

Even if you DON’T end up closing on the deal, there will be a LONG line of people who would die to get their hands on a deal like that.

Reason # 2: You should always walk through open doors until they close

In my 11 years of being a full-time entrepreneur, I have learned that the universe gives you opportunities all the time. Many times we don’t see them or, more frequently, we fail to take advantage of them because we’re afraid.

I have found that when we walk through the open door presented to us, magical things happen that we never thought possible.

Therefore, it’s a new rule for me, that if a door opens that is aligned with your purpose and goals, that you should keep walking through the door until it’s permanently closed. Don’t give up until then.

The “Worst Case Scenario” Exercise

Sometimes we fail to do something because we’re afraid of what COULD happen.

Even if the likelihood of that happening is remote.

One exercise I like to do when I’m afraid is to write down all of the “bad” things that could happen. I find that once I see them on paper, they don’t seem that bad, and my fear becomes manageable to the point where I can continue to take action.

Let’s do that exercise for this particular situation.

Let’s assume you found a 15-unit apartment building, analyzed it and made an offer. The seller countered, you sharpened your pencil and continued to negotiate a price works.

It's actually a smokin’ hot deal.

But you need about $250,000 in cash to close on this deal you've only raised $50,000 of it from friends and family.

Let’s further assume that you chose to continue walking through the open door. You decide to submit a letter of intent.

In the time it takes to negotiate and sign the letter of intent, you have 3-5 extra days to call potential investors.

You also decide to work on Plan B, which is to call other potential investors who might be interested in buying this deal from you. You could either partner with them, refer the deal to them or wholesale the deal to them.

You call brokers, property managers and other professionals who might be able to put you in touch with owners of similar buildings. Network at your local REIA or on sites like the Bigger Pockets to look for people who already own multifamily buildings like this.

You get the letter of intent signed. You now have 7 business days to submit a purchase contract. Getting the contract ratified takes another 5 days. You now have an extra two weeks to raise money or find another buyer or partner.

Now you have 21 days to complete due diligence. This gives you at least an extra two weeks to raise the money or find another buyer.

Since submitting the LOI, you've had almost an entire month to raise the extra money or to find someone else who would assume the contract. This is probably more time than you realized!

You have a good deal and plenty of people are either looking for somewhere to put their cash or to buy a multifamily building that has been hard to find.

Worst case, if despite all of these efforts you FAIL to raise the money or find a single person who wants the deal you’ve delivered to them on a silver platter, you can always exercise the due diligence termination clause in your contract.

If you construct your contract correctly, you can terminate the contract for ANY reason before the due diligence period expires.

(While you can exercise this clause for ANY reason whatsoever, I would caution you to either have a GOOD reason or at least try to preserve the respect of the broker. Otherwise you will quickly develop the reputation for “not closing” and wasting everyone’s time).

What’s the Lesson?

Once we complete this “worst case” exercise, we realize that there’s a good chance you’ll actually raise the money.

But if you don’t, then it’s even more likely that you’ll find another buyer or partner who would die to take this deal off your hands and add it to their portfolio.

And in the off-chance neither of these materialize, you can exercise your contract termination clause.

So your “worst” case isn't really that bad after all (that's lesson # 1).

And lesson # 2 is to keep moving forward through open doors until they’re permanently shut. I have found time and again that magical things happen when you do …

Let me hear from you! What door did you walk through, and what happened? Or what door did you fail to walk through and why?


3 Responses

  1. I am fairly new to the real estate investment world. I have connected myself with a few commercial investors and an asset manger. I have been reviewing the numbers on many different properties. I have been on a quest to find investors to help fund commercial transactions from a list I am able to cherry pic from. I just recently submitted a purchase contract for a multi use commercial unit. It is a historic location located in NY. The city attracts people for multiple events as well as the college coward. The unit has a small restaurant, Antique shop with multiple vendors, and apartment unit that is occupied. Any information to funding would be appreciated.

  2. Well at this point I am looking for the funding. I am checking with friends and family. I am asking most people if they would look to have a split in the deal. The owner let me know he will have his lawyer take a look at the contract. I spoke with a broker that let me know he would be able to find the funding its just what the interest rate will be and getting the loan app completely filled out. I guess my question would be any private funding sources you know of. I still have time and I have not given up.

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