Financing Sources

Lesson 3 – How to Raise Money Abroad

The true story of the Brooklyn Bomber shows us how to take advantage of distortions to obtain our financing sources.

Actually the Brooklyn Bomber was a Brooklyn Boomer, and a young real estate developer who needed international financing sources to save his neck. He was sharp, intelligent and successful and in the 1970s he stumbled onto an exciting real estate idea that was bringing him great profits without anything but local financing sources.

Manhattan real estate prices were rising strongly in the 70s. The boomer saw that young professionals his age (late 20’s and early 30’s) could no longer afford to live in the better parts of this exclusive island. He knew they needed to be close to town for their profession, wanted lots of room to raise their families and liked living in a nice setting with good architectural design and all the conveniences of modern living.

He filled these needs by converting warehouses in Brooklyn into attractive and spacious condominium living units. Local banks provided his financing sources and the idea worked very well. The warehouses were only short blocks from very nice residential parts of Brooklyn and were capable of providing many large living units. This man’s business prospered and soon he started an even bigger project and then another. Ass he grew the local lenders were all too happy to give him all the financing sources he needed.

Then the economy bombed the boomer and his financing sources went south. He was more than fully committed. His local financing sources had been generous and he had over borrowed and needed quick cash to keep his deal going. An oil shortage, a banking crash and really high interest rates were on the verge of shutting him down as his financing sources stopped lending and raised his construction loan interest rates.

The Brooklyn Bomber was caught in a bind having already borrowed as much as he could from his financing sources. His financing was all in short term construction loans that were coming due, and he had to refinance at higher and higher rates and there were no other local financing sources around.

High interest rates hit him doubly. First, his construction loan rates from his current financing sources ruined cash flow and ate potential profits. Even worse the high rates increased mortgage payments so the financing sources for his young professionals also dried up. His buyers could no longer qualify for mortgages. His bankers were edgy. Essentially his friendly financing sources now became his enemy.

At this stage this man consulted me about finding financing sources in Europe to tide him through his cash crisis.

At his request, I flew to New York and rode with him to the apartments. They were beautiful, so attractively designed that they had been featured in architectural magazines. “Just the kind of place Europeans love” was my thought, “but how do we quickly find financing sources?”

Perhaps, I thought that it would be better to sell apartments to Europeans rather than look for them as financing sources!

Owning houses is something Europeans readily understand. They have confidence in owning houses. Making loans and investing in equities and acting as financing sources are not so much their deals.

So we treated the apartments as the investment and placed small, classified ads in the Netherlands, England and Germany. We aimed for buyers rather tan financing sources.

Here is why. Interest rates on the dollar at that time were at all time highs. Plus the U.S. dollar parity was at an all time low versus the British pound, German mark and Dutch guilder. These Brooklyn condos, seemed really cheap, when converted into foreign currency.

We did not try to sell the condos by mail. The sole object of our first ads was to find Dutch, German and English financing sources who were interested enough in investing in New York, that they would come and look at the condos.

Our sales package was aimed at getting the investors to Brooklyn, not at selling the condos direct. We wanted centers of influence not just financing sources. The marketing package included a copy of the famous architectural magazine showing the condos as well as details about profit potential of the property and the really low price in European and British currency terms. We kept a clear message that we were offering an investment backed by property ownership and that we wanted to meet the buyers and let them see for themselves. We felt this was better than just advertising for financing sources.

The American buyers who had been buying from the Brooklyn Bomber were buying homes. These Europeans we sued as his financing sources were making an investment which was very different.

We designed a package so the Europeans could buy an apartment, and immediately lease it to an American buyer – with a lease option.

This helped the Americans who wanted a place to live but currently could not qualify for a mortgage. They could immediately move into the house of their dreams even though they di not have local financing sources. They could buy it later when they had a larger income (or when interest rates fell) and their local financing sources would lend to them.

The lease on the other hand created immediate income for the European investor and the lease option sales price locked in a capital gain for the European. They became financing sources, but viewed themselves as property owners and landlords.

The Europeans loved this because they earned income now, appreciation later and the entire package was secured by the real estate itself. This was the perfect way to make them financing sources.

This was a win – win deal all made possible by distortions of currency fluctuations. The weak U.S. dollar made this property seem really cheap to Europeans. Yet the weak dollar pushed up oil prices, and interest rates made the condos really expensive for Americans.

One more point can be gained from this lesson. The developer’s goal was to sell as many apartments to European investors for cash as fast as he could while the distortion remained so he did not need local financing sources. Yet we also set up a limited partnership designed for small investors who could not afford to buy an entire apartment. The partnership took title to one condo at a time and sold units of ownership for as little as U.S. $5,000. this created more financing sources from small investors.

This allowed Europeans to own a part of condo and gave the developer investment packages to sell for all ranges of investors. He sold the apartments for $125,000 to $250,000 to single investors, but with his deal could offer a $5,000 investment.

By taking advantage of this distortion this Brooklyn developer did not bomb out. He developed alternative financing sources instead. This gave the Brooklyn Bomber a plan to salvage his tight position then, but also gave him much, much more. Once he had developed a group of real estate investors in Europe he had entirely new financing sources for the future. As interest rates fell and the leasees began to exercise their options, his European investors saw profits and had extra cash. By developing good will with these investors he maintained a steady supply of financing sources that allowed him to outgun other developers in the area.

This led the developer into an international business, with an overseas sales company. He learned how to use his financing sources in a Circle of 100. He paid this sales company generous commissions and built an asset protected cash reserve aboard.

This is a wonderful case where the solution to a short-term financing sources problem (that could have bankrupted the developer) created reliable long-term financing sources that solved his current problem and remained so he could also use them in the future.

He gained a source of money in many currencies and often at competitive interest rates. This source of money was available in good times AND bad, when other developers could not get money at all!

He gained an overseas company with 50% non-U.S. owners who were his financing sources. He reduced U.S. tax liability. The assets in this overseas company were also protected from lawsuits and litigation in the U.S. See our FREE course “Asset Protection For Everlasting Wealth” to learn more on the Circle of 100.

See how to reach more investors everywhere using the “Theory of Ten” in the next lesson of this course on international financing sources. Go to lesson 4

You can increase profits, enhance security and have extra tax and asset protection. Turn your passions into profit. Start your own international business now! Learn how to raise money abroad.

Find out more about our complete course International Business Made EZ at Garyascott.com

Until then may all you business be good.

Gary

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