Structuring Deals

by | Oct 14, 2019

Structuring Deals 

Matt Faircloth is the President of the DeRosa Group, a real estate investing group he co-founded with his wife, Liz. Matt has been investing in real estate in 2005 when he quit his job as a traveling sales rep. Since then, he’s done all kinds of deals, from single-family rentals to multi-family units to fix-and-flips and more. He’s learned a lot about financing his deals through private capital and even wrote a book on the subject called “Raising Private Capital”. 

One thing that Matt has learned over the years is how to structure a deal. Matt has done things as simple as private loans for fix-and-flips where the lender essentially acts as the bank for the investor and is protected by the same documents that a bank is. Secondly, Matt has also done private equity agreements, where a loan from the bank allows him to purchase a property and sell shares of the property to investors much like buying stock in Microsoft or another company. 

A third option Matt has used is a hybrid option called a joint venture. With this option, Matt has had an investor loan money to help his company build and sell properties. Along with that loan came interest and a percentage of the profit (much like a share) back to the investor. Deals like that can be very lucrative, and as Matt puts it, “There doesn’t need to be one flavor of ice cream.” He has even worked with commodities brokers on Wall Street to invest using a closed-end mutual fund to build property portfolios. The possibilities are endless!

Shifting Strategies

If there’s one thing we all know about real estate, it’s that the market is far from static. Recessions like the one in 2008 can hit and shake things up pretty substantially. It can be pretty intimidating to dive into unpredictable waters and take the investing leap. Luckily, Matt and I are here to offer some guidance in this regard and hopefully calm some fears you might have.

First, investing in different states. While the strategies may differ, the fundamentals are the same. Some markets may require more resources and capital to do big deals, so Matt advises us to recognize what is in need in that specific city or state before investing. Fix-and-flips might be really great in one market, while another is good for mid-size multi-family properties. Pick a strategy for each market and stick with it. If you try to wear too many hats, you might get overwhelmed. I personally prefer smaller markets for lower taxes and less regulation, but your mileage may vary.

Adaptability is key when the market hits a downturn. Matt stresses the importance of remaining an active participant in the real estate market and investing based on where it’s at versus where you hope it’s going. To that end, Matt did a lot of short-sale deals while the recession was in full swing. You can learn some pretty cool new things when you realize that certain deals are the best option. Just remember that you cannot control the market; you can only participate in it. If you remain adaptable, you’ll be able to handle whatever comes your way. 

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