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Feb 6, 2016
9:03:05am
HarlemCoug Contributor
I don't understand why you guys think this is a scam. It might be, but it seems pretty common to me. I'll explain:
I work in real estate - these kinds of deals happen regularly (as in daily).

Let's say the property is $10MM and you found the deal. It's a good deal and you can raise the equity from investors. One of the investors likes the building enough that he's willing to put up the hard money to get it into contract. In return, you'll give him part of of the managing member.

For finding the deal and putting it together your investors agree to pay you $200,000. Instead of taking the money now you agree to put that money into the deal as your capital contribution.

You then go raise a total of $3.5MM of equity.
You create an LLC to buy the building. The LLC is new and has no credit, but the bank is satisfied that the cash flow from the real estate is sufficient to cover the debt service. The bank most likely will run your credit but... the loan won't show on your credit report. You aren't borrowing the money, the LLC is borrowing the money.

Accordingly....You buy the building without using any of your cash nor any of your credit.
HarlemCoug
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HarlemCoug
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2/6/16 10:54am

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