Prospective Entrepreneur Questions
 

I'd appreciate thoughts on the following. I got the idea for this from a book called "The Secrets
of Syndication" by Richard Beguelin ©1985. The basic premise is to buy businesses or
income-producing real-estate such as office buildings by forming limited partnerships. The two types of partners are limited partners (invest money and do not manage) and general partner(s) who manage the business and may or may not invest also.

The job of the general partner is to research and find projects that will pay a high enough return on investment (ROI) to attract limited partners. Mr. Beguelin lists several projects in his book that he did. The general partner makes money by 1) charging an upfront fee for finding, structuring and closing the deal, and 2) gets a cut of the profits, usually AFTER the investors have been paid back 100% of the initial investment.

I know this basic business set-up is sound. It just depends on the project. I understand that a lot of commercial real-estate is done this way. I have done much research into this and am actually looking at some specific beach property that I think can pay back 30% - 40% ROI per year. My biggest hurdle and it's due to the fact that I am not really a salesman (but I'm not worried about that because I will put together a prospectus that must sell itself) is this: I cannot advertise publicly for investors - all states have laws that prohibit advertising to locate partners for a limited partnership. And I live in Maryland, which limits the number of limited partners to 35. I need to know how to find people with money to invest! And basically by word of mouth.

My two specific questions are:

1. Have you done this sort of thing; or do you know someone who has? If so, I'd appreciate input on how to locate investors.

2. Has anybody read the aforementioned book? Tried it? What do you think?

Thanks,

Tim Spencer

P.S. Does anyone know why the links to "BYBA" were taken down on the main SOWPub.com page?

Limited Partnerships....
 

Hi Tim,

Interesting question.... I was looking into doing something like this once, but to set up a limited partnership (with me as the general partner) for stock market investments.... However, I didn't look far enough into this idea to come across the problem with advertising for limited partners....

One thing to think about is that this isn't the only structure open to you of course. You could also form a company, which might give you greater flexibility in what you could do.... So that could be an option to look into. You could form a company which invests in real estate, and look for investors to invest in the company....

The only other solution that springs to mind right now is that, if you are convinced it is a good investment, then you could approach people you know personally who might be interested, to be limited partners. That sounds like it would be a win/win deal....

Maybe someone else will have some other good suggestions?

> P.S. Does anyone know why the links to
> "BYBA" were taken down on the main
> SOWPub.com page?

We were testing something, but BYBA will be back up soon. :) (Probably by tomorrow....) Thanks for noticing!

Dien Rice

Sophisticated Investors
 

Dear Tim,

I am vaguely familiar with limited partnerships, but have no direct experience. I know that Warren Buffett first set up limited partnerships when he was starting on the career of investing on behalf of others.

I've chosen to do this by setting up a private company instead, and issuing shares to shareholders. One possibility is that you could set up a private company, but a limited partnership structure would probably be as effective. Besides, being in partnership sounds much more friendly. :)

In regards to advertising publically for investors, I believe US law is similar to Australian law in that it restricts private companies and limited partnerships from raising money from the public. What this generally means is that you can only raise money from:

(1) People you know, and/or

(2) Sophisticated investors. Or accredited investors. Or whatever terminology your law uses. These are people that meet certain asset and/or income tests (>$1,000,000 assets or >$250,000 income in Australia I believe) and these people are allowed to invest in such ventures, and you may legally approach. Presumably the reason for this is the assumption that richer people have access to more sophisticated advisors who can advise them on potential investments.

If you have established that you can raise money from these people in particular, then you have the job of contacting them and making your pitch.

I'm not really sure how you would do this. Perhaps you can buy a mailing list somewhere?

And from there, it's basically a job of selling yourself, your skills, experience, credentials, and so forth. To convince others that they should entrust their money to you.

Good luck to you! I hope it works out well.

- Thomas.

> I'd appreciate thoughts on the following. I
> got the idea for this from a book called
> "The Secrets
> of Syndication" by Richard Beguelin
> ©1985. The basic premise is to buy
> businesses or
> income-producing real-estate such as office
> buildings by forming limited partnerships.
> The two types of partners are limited
> partners (invest money and do not manage)
> and general partner(s) who manage the
> business and may or may not invest also.

> The job of the general partner is to
> research and find projects that will pay a
> high enough return on investment (ROI) to
> attract limited partners. Mr. Beguelin lists
> several projects in his book that he did.
> The general partner makes money by 1)
> charging an upfront fee for finding,
> structuring and closing the deal, and 2)
> gets a cut of the profits, usually AFTER the
> investors have been paid back 100% of the
> initial investment.

> I know this basic business set-up is sound.
> It just depends on the project. I understand
> that a lot of commercial real-estate is done
> this way. I have done much research into
> this and am actually looking at some
> specific beach property that I think can pay
> back 30% - 40% ROI per year. My biggest
> hurdle and it's due to the fact that I am
> not really a salesman (but I'm not worried
> about that because I will put together a
> prospectus that must sell itself) is this: I
> cannot advertise publicly for investors -
> all states have laws that prohibit
> advertising to locate partners for a limited
> partnership. And I live in Maryland, which
> limits the number of limited partners to 35.
> I need to know how to find people with money
> to invest! And basically by word of mouth.

> My two specific questions are:

> 1. Have you done this sort of thing; or do
> you know someone who has? If so, I'd
> appreciate input on how to locate investors.

> 2. Has anybody read the aforementioned book?
> Tried it? What do you think?

> Thanks,

> Tim Spencer

> P.S. Does anyone know why the links to
> "BYBA" were taken down on the main
> SOWPub.com page?

Thank you Dien and Thomas for your responses ! (DNO)