Episode 77: Money Rules and Due Diligence with Dave Hare


'It’s all about planning. I can’t stress enough that you have to have your ducks in a row before you start getting into deals like this.' Dave Hare Click To Tweet

 

Dave Hare is here to talk about money rules and due diligence. Dave and I do a lot of projects together, and I am going to have him on the show on a regular basis. We are also going to use our new marina in Texas as an example of how a deal gets done. But first, we are going to talk about due diligence and money rules and how the rules come about for people.

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'You have to know your exit strategy. Are you looking for a 3 -5 year play, or are you planning on refinancing at some point? You have to start off with the leadership team.' Dave Hare Click To Tweet

Show Notes

  • [01:17] It’s all about planning. These aren’t deals that close in 30 days or less. These can be stressful and time consuming, and you could end up walking away from the deal.
  • [02:10] Make sure that your investment plan is part of your money rules not part of someone else’s rules.
  • [02:53] How investing starts with money rules.
  • [03:06] What is your exit strategy. Refinance or short term play? Begin with your leadership team.
  • [03:33] Do you have a strong operation and finance team? Bring in someone who knows operations and who has an equity play. These answers are the key when speaking with bankers and investors.
  • [04:19] Who has oversight on the books? Is the business or investment family owned?
  • [04:59] Think of deals as a fix and flip.
  • [05:46] Dave ran the numbers on a deal and realized a family member had been stealing from the rest of the family. This was a deal they had to walk away from.
  • [06:24] Dave and Loral do thorough background checks on everybody involved when doing deals.
  • [06:49] Numbers may or may not make sense. Make sure there are long term leasing options and good relations. Assets are your future. They need to support the business going forward. Look at the story behind the story.
  • [08:04] Don’t close before you find the story behind the story.
  • [09:19] Dave found the marina business through networking. He signed up for meetups etc. He found this contact at one of Loral’s events.
  • [10:48] Get yourself out there. If you want to do it do it and get out there and make yourself known.
  • [11:25] The marina deal, due diligence, background checks, Dave’s due diligence list is 12 pages long. It lets the people on the other side know that you mean business.
  • [12:25] Create a letter of intent before making a purchase agreement. A letter of intent is a non-binding contract. This gets the discussion going and let’s you start working on due diligence and financing.
  • [13:38] Look at the owners background and story, the customer base, the boats, the buildings, and everything you can look at.
  • [14:09] How each person on the team brings something unique to the business. Never go alone especially on your first business. There is something that you will miss.
  • [14:43] Have team members with experience, and have someone who understands finance and accounting.
  • [15:29] You need to seek out smart knowledgeable people for your team. The buddy clubs aren’t going to work because they don’t have enough skill set on the team.
  • [16:23] You have to understand what someone brings to the table and what their exit strategy is.
  • [16:52] The components of the deal. Knowledge and experience will get you a seat at the table. Equity side and debt side.
  • [17:36] They approached the owner who wanted to do a quick sale. Seller financing under 50% of the value of the property. Then they had to go out and find the 55% of the loan with equity partners with an option to refinance. They are doing about a million dollars in renovations. They want to rebuild the area back to it’s 1950’s glory days of farmers markets and bands etc.
  • [19:34] They structured the deal with the sellers financing. This helps motivate the seller. They were also able to do a second position with the owners. The did have to pay another 1/4 percent and walk away fully financed.
  • [20:38] Deal creativity. Carry backs etc. Use creative deal structures with the use and return of the money. First money in gets more, because they have taken the highest risk.
  • [21:36] The rehab money won’t get equity. There is quality of money. When you first start a deal, you have to give something up.
  • [23:08] They have a one-year note that gets double digit returns.
  • [23:36] The important thing is background checks. You have to do them. Don’t be afraid to walk away if you need to.
  • [25:30] We are here to teach you the reality of owning real assets.
'When making large deals, you have to have a strong team. You need a strong finance person and a strong operations person who has an equity stake.' Dave Hare Click To Tweet

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