I’ve been asked many times what I would have done differently had I been the one to create a program like Karen Hanover’s Fast Track program. That question is almost impossible to answer because no one really knows what was offered and what was accepted. So for the sake of discussion, let’s start from scratch and design a program that would work for everyone.
First we need to understand what did the “customers” of the Fast Track program desired when they put up their hard-earned money? They wanted two things. First, they wanted to be part of a deal where they could learn about multi-family ownership, and second, they wanted to put their money into an investment that would give them a fantastic return. This was the “brilliance” of the Fast Track program. If the SEC comes knocking on anyone’s door, the promoters of the program could claim that they were not selling a security but instead were selling educational services and if the FTC comes knocking, they just claim either they weren’t offering educational services or that the services have not been fully-provided yet. I know what you are thinking; you would have to be a psychopath to be able to think that way. Well, exactly.
Here’s what I would have done. Prior to soliciting the first membership to the program, I would have sat down with my SEC attorney and asked them to create an investment fund that allowed for the collection of investment dollars for the purpose of acquiring multi-family property. We would not have even had to have had a property identified; just the purpose of the fund would have been established and documented.
Then I would have opened the fund up to potential investors. Anyone I spoke to about the opportunity, I would have handed them an accredited investor questionnaire that they would have had to sign, an offering memorandum describing the fund and how it worked, and among other documents, a Private Placement Memorandum that would have satisfied the SEC’s requirements of complete disclosure.
Here’s the real catch. This is the one that would keep me out of jail. All funds would be held by an escrow agent. I would never take control of the funds personally and if an investor wanted their money back before we purchased a property, they would be entitled to because it was clearly stated in the Private Placement Memorandum that they could do that up to thirty days before the scheduled closing date of a property.
So that’s all the legal stuff that I would make sure was in place before I even started to talk to investors. But what about buying the property? Now this is where it gets fun.
The type of property that we would be allowed to acquire would be clearly stipulated in the PPM. We would be looking for a multi-family property that we could purchase for pennies on the dollar and that was either a B+ to an A class property. None of this no-money-down stuff. The number one criteria is that we could buy a great asset at a ridiculously low price. Why would we be able to do this? Because we are shopping with cash in our pocket; no schemes, no seller-carrybacks. Just cold hard cash.
Let’s say that 100 investors put up $35,000 apiece into the fund. When the fund closes, we could contact several lenders and say that we have $3,000,000 available to help their balance sheet and take some troubled assets off their books. The remaining $500,000 would be kept in reserve to run the property. I can assure you, there are many banks right now that have been told by the FDIC that they need to raise cash fast. These banks would be our first stop.
Our objective would be to buy good property, property that you would want to live in yourself, fix the problems with it and then sell it and do it again. Every step of the way, the investors would be involved and would see how the process works.
How would I be paid? It would be clearly stated in the Private Placement Memorandum. No secrets. No conference calls where questions could not be asked. Just a legitimate investment opportunity. That’s what the “customers” of Fast Track wanted all along and had they been given that from the start, one person would have been an incredible success.
You can find out how I run my own Multi Unit Apartment Commercial Fund HERE
Accredited Investors can download a Investor Profile Form (IPF/PCG) here : TWG-PCG-Registration