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Value Hound Blueprint

Craig Haskell

Unleash the Value Hound system of finding great deals that offer value creation opportunities and then syndicate them through group investments to create financial freedom for you and your family. 

The process of finding great value real estate investments and finding investors for those real estate investments is the Value Hound Blueprint; a business.  It's a real business that provides an income stream, by way of various syndicator fees, and builds long term wealth from backend performance profits. This business is often referred to as the syndication business.  By using a very conservative syndication model (shown below), you can become a syndicator or sponsor full time in as little as three years and achieve financial independence.

The syndication model is a common model used in the purchase and sale of many types of assets, but for our purposes, it is used quite often with real estate investments.  Some of the largest investors in the country syndicate their properties.  We would venture to say that less that 10% of all large commercial real estate investments around the world are 100% owned by an individual or family unit.  Most large commercial properties are purchased by pooling investors together.  If you want to build financial independence through commercial real estate investment, then learning how to use the syndication model will help grow your real estate business.

How Rance King Built His Syndication Business to Over $300 Million

Rance King
Rance King

William “Rance” King, Jr. graduated from college and worked as a business machine salesman for years.  In 1976, he syndicated his first small value add apartment building in California.  Rance's first investors were his co-workers at his place of employment.  Finding success with his first investment, Rance found a great value creation deal on another smaller apartment building, and again pooled investors together using the syndication model.

Rance has been using the same syndication model for over thirty five years and has had over 126 properties go full cycle, where he bought and sold his properties, returning consistent cash flow and profits to his investors.  During his thirty five years in business, he has made himself and his investors a lot of money.  Today, Rance's real estate syndication business has grown to over $300 million.

Listen and read Rance's interview How to Build a Successful Real Estate Investment Company Buying Value Add Properties

Rance's syndication business consists of many activities in real estate investment, management and construction.  Rance is actively involved with the acquisition of new properties, financing the properties, packaging and underwriting new investments for investors, managing properties and investors, construction related activities to build and renovate properties, and eventually selling properties for profits.  All of these services take time and require expertise so Rance charges fees for the services he offers. These fees help pay for his support staff so that he can run his business and provide a comfortable life style for his family.

As Rance says, “This is a get rich slow business.”  Find a great value creation opportunity and raise the capital to fund the deal.  Research and locate another great value creation deal and then raise the capital to fund the deal.  Repeat the process over and over again, while building your long term wealth in the process.

The Value Hound Blueprint to Financial Independence

We have created a very simple syndication model plan for you to follow.  This model was created with a new investor in mind.  Experienced investors can simply multiply the results by “X” number of times based on their experience level.

The purpose of this model is to give you a big picture of the potential of a value real estate syndication business.  The blueprint must be modified to conform to your real world market conditions, but it gives you a starting point. This blueprint model offers you a “first draft” to tear apart and reassemble into your own particular plan.  Have some fun and make you own assumptions and recreate your ideal model plan.

Assumptions

There are many ways to structure a partnership with investors.  You may have a fantastic deal that has a lot of built in equity where you might want to take less fees and more backend profit.  You might have a deal that has a lot of construction where you get paid construction fees to oversee the construction process.  Some investors don't take any fees on their first deal and only participate in the backend.  To keep it simple, we have created assumptions based on what might be in an average syndication model.  Again, there is no hard and fast rule on how to structure your partnership but here are the assumptions for our model syndication plan:

  • Acquisition fee of 3% of the purchase price
  • Underwriting fee 5% of the money raised for packaging and finding investors
  • Annual partnership fee 1% of the asset value
  • Resale fee of 3% of the sales price
  • Sell a property every four years
  • Sponsor (you) get 25% of profits
  • Buying with a safety of margin

There are some fees you might want to add and others you might want to delete. For example, on a property we syndicated where we did a complete renovation spending almost $2 million, we took a construction fee of 5% of the construction budget to compensate us for services rendered in managing the construction process. Keep in mind the type of services you may render on your particular deal and add those fees into your model.

Some sponsors will find a property that requires extra capital for renovations that is not used in our sample model plan.  Again, that's okay because your model plan can be a little different. Our goal is to get you looking at the big picture and the strong income potential from using this business model.

Year 1

Since you are new to the business and still learning the business, we have assumed you are going to buy one property for $300,000 and raise $100,000 from friends and family investors.  We are buying commercial properties, but buying a house on your first deal is okay.  Also, remember that we are buying property with a margin of safety, which should be purchased significantly below market value. Your first deal has to be a “no brainer” for an investor.  It should have a WOW factor, such that when potential investors look at your deal, they get excited about the profit potential.

You have plenty of time to find a great value deal.  When you contract to purchase the property, give yourself plenty of time to find investors, so ask for a 90-day close with two 30-day extensions when negotiating the purchase of the property with the seller.  Don't agree to a short time fuse on your closing.

Normally, we prefer smaller investment groups. They are easier to manage.  But in our sample model, as a new investor, you are trying to build a growing pool of investors so bigger is better on the first deal.  While you might find one person to give you $100k, find ten investors with $10,000 each, which will raise a $100,000 for your first deal.  Make sure you follow state and federal guidelines when raising money.

With the funds you have raised, you will make the planned down payment, pay closing costs, pay your fees, and have money left for reserves.  The hardest part of the business, getting started, is now over. Your syndication business is now underway.

Year 2

As a result of having your first deal done, you are now viewed differently by potential investors.  You are a deal maker and raising money starts to become easier.

In year 2, you are going to buy two properties that equal $700,000 in purchase price and raise $300,000 of equity from investors. Every six months you are going to find an awesome value deal and raise $150,000.  Raise $15,000 from 10 investors on the two investments.  If possible, try to get as many new investors as possible.

Ideally, by the end of year 2, you might have 30 different investors. This is a great size of investors to manage.  In many cases, just making money for this pool of investors can be the very nucleus to raising additional money on future deals. Raising money can be as simple as going to your current investor base and having them invest and bring in other qualified investors.

Year 3

After two years of building your syndication foundation, you are ready to buy a bigger deal.  Buy a property for $1,500,000 and raise $600,000 of equity capital.  You have a pool of investors to start fund raising, and because you've been doing this for two years, other investors have approached you looking to invest. If you followed our get-rich-slowly process, the third year will really be a big stepping stone for your business.  It's quite possible you could buy a larger property, raising more than $600,000 because you have built a strong investor following.

You are making nice fees from your syndication business.  With a six figure income, you can think about quitting your regular job and run your syndication business full time.  You have found financial freedom in year 3, giving you lots of options.

Year 4

You will notice the syndication process flip flopping from when you first began. It's now easier to raise money than it is to find great deals.  In year 4, be careful. This is where a lot of syndicators make a big mistake.  You have a large pool of investors to fund deals.  Many syndicators get greedy to earn fees and start buying properties that are more risky and don't offer a margin of safety. Follow the plan and only buy great value deals; you're a value investor.  If it turns out you can place more money on great deals, then fantastic.  But only buy great deals.  It will pay off handsomely in the future.

Continue to buy larger properties because they offer better economies of scale. In year 4, you will buy a $2,000,000 property, raising $800,000.  With all the investors chasing you to invest their money, make sure you buy a great value opportunity.

You will sell your first property in year 4.  This will return money to your investors and make you a nice profit.  Many times, investors will want to reinvest their sale proceeds into another deal so you'll have some available capital for another deal. I recommend you participate as an investor with your own money in the next deal.  Your invested money will be treated the same as other investors, and you might negotiate a higher backend profit split because your money is in the deal.  For purposes of our sample model plan, we have not assumed you will invest your money in the next deal.

Year 5

Things are really rolling now with your syndication business.  You have become a real professional at buying undervalued real estate to profit for your investors.  Your business has become quite busy so it's now time to hire support staff to help further grow your business.

Again, you will sell another property and distribute profits to your investors and yourself.

The last year, in our sample model plan, you are going to buy a $2.5 million property, raising $1,000,000.  As the years roll by and your investor pool is large, you can now shorten your closing time frame.  There may be some excellent buying opportunities that require you to move quickly so you now have the flexibility to do so.

Year 6 and Beyond

You have created sizeable wealth during the last five years.  You only bought great deals using the real estate value investing principles and got rich slowly. You weren't influenced by getting too big, too fast.  Your investors are your biggest fans and they look to you with confidence to manage their money.

You have many options to continue your business.  You can start buying value deals using most or all of your own money, giving you control and more profit potential. You can continue to grow your business by syndicating more deals. Your options are endless because you now have the American dream - financial independence.

Sample Value Hound Business Model


Shown in the chart above, the left side of the plan is the acquisition or buy portion, and the right side of the plan is the disposition or sell portion.  Properties are purchased each year for five years, and sold four years following the year of purchase.  The annual partnership fee is not a one-time fee, like the other fees in the chart, so it is earned each year and is calculated in the total income per year.

This chart can be recreated using spreadsheet software like Excel.  Build your own model.  You might want to take less fees and more backend profit participation.  You might want to take more fees and less backend.  I know a syndicator that only took 10% of the backend but took much higher front end fees.  You might want to invest a large portion of your own money and therefore require a higher backend percentage.  You might be able to raise much more money than outlined in the sample plan.  Create your own plan and take action on executing it.

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