Walking by Money for Your Deals: How Funding May Exist in your Back Yard

government-grants-thumb3Have you ever been out walking and noticed a dollar on the ground, stepped on it and kept on going?  Perhaps you have done so with a $500 bill?  Think about that for a second but think about walking past a pile of $500 bills.

The purpose of this article is to provide you with some insight into a lesser known world of real estate professionals seeking funds and opportunity from the government.  When investing in real estate deals using “other people’s money,” note that your partner may be a unit of local, state and/or federal government.  You will notice the anatomy of a deal and perhaps figure a way to follow the roadmap so many other successful investors have quietly followed.

Anyone in real estate knows that raising capital is the single most important component to being successful.  As you think about that, contemplate the types of capital available.  Many folks talk of hard money financing, or self-directed retirement accounts, or straight level “one-off” investors.  In each case, you can be faced with a gap that you may personally need to fill.

A Fire May Ruin My Building, But Not My Cash Flow

A client who dabbled in real estate as a contractor came across a building that had been burnt out by a fire initiated in the restaurant kitchen on the first floor.  In fact, there were two abutting buildings with apartments on the second and third floors, with retail space on the ground level.  The building is located in a tough area of the City that some politicians have tried their hand at redeveloping.  A slow process, but certainly underway.  A vacant, boarded up burnt building could handicap that idea.

When You Have Your Hand Out: Partner, Don’t beg!

20TrMy client approached the city and mentioned his intentions to fix up the property.  He indicated that he had secured some financing for the acquisition and rehab, but was still seeking other funds to complete the deal.  Was the City interested in partnering with him?

Yes!

Why would the city become an investor in this property?

 

The City receives funds annually from the federal and state governments to provide decent, safe and affordable housing, community development and economic development activities.  These are just a few major examples of funds received from the Home Partnership Investment Program or the Community Development Block Grant.

In the case study above, the city provided several hundred thousand dollars to assist in the renovation of the building.  The funds were offered as a 0% loan with a lien position to ensure completion.  In return, the apartment units would be rented to those whose income falls below 50% of the Area Media Income as defined by HUD on a yearly basis.

So the question remains:

Was the deal a win-win situation for the City and the developer?

 

Clearly the answer is a resounding yes.  The city could have waited for the developer to raise his own capital, but he wouldn’t have raised as much or been able to do as much without city support.  A stagnant building would drag on the City’s redevelopment efforts and been a constant blight.

Today, the project serves as a catalyst for economic development in the neighborhood!

Here’s the bottom line…

 

The above case study illustrates the importance of maintaining a relationship with local governments, but also demonstrates the availability of funds in so many areas of real estate.  The common investor perhaps would have walked by $400,000 worth of city funds, but you now know.  Moreover, the case study shows a need for real estate professionals to be wide eyed when looking at their projects.  Look at everything and look for funding everywhere.  Leave no rock unturned.

Action Steps – Do It, To It!

 

STOP:  Rushing deals just to get them done!

LOOK:  For funding in your local area.  (City, State, Federal)

REPEAT:  The process over and over to enjoy low cost capital and high return cash flow.

About Sean Carpenter

Sean Carpenter is the President and Chief Executive Officer of Shamrock Development Associates, Inc., Government Deal Funding, LLC and all of its affiliated companies. Shamrock is a full scale development, consulting, public relations, corporate marketing, and asset/ property management firm. His knowledge of public programs has brought him to teaching opportunities to share his insight throughout the United States.