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Invest! – Postgreen’s Residential Project Investment Program

by Nic Darling on February 18, 2009 · 17 comments

in Development,financing

As of today we are officially building four homes. The first two (the 100k and 120k) many of you have been following for a long time now. We will be finishing them up in the next few weeks. The second two, known as the Philadelphia Passive Project, we just recently introduced. Of those four homes, three already have signed agreements of sale and the fourth has several interested buyers. Despite dire economic warnings and the apparent deflation of the housing market, we seem to have found a product that sells. Now, we need to keep up with the demand. We need to build more houses.

We have the capacity to build many more of these homes over the coming year, and we are developing a new purchase and delivery model that will simplify the process for both us and the buyer. The challenge right now is land acquisition and capital. This, my friends, is where you come in.

Postgreen (that’s us for you newbies) is introducing our Residential Project Investment Program. This is basically a project specific investment program that brings in outside partners to fund land acquisition and some construction costs for a set return. This program is actually already at work in several Postgreen projects.

How It Works

Postgreen will be finding qualified building lots and placing offers. When an offer is accepted and we decide to purchase the land, we will send an investment proposal to all the qualified potential investors on our list. The first to respond to the proposal will be given the opportunity to invest in the project.

Investors will receive their payback and return upon final sale of the house. These investors will be ahead of us and just behind the bank in payment. In other words, we at Postgreen don’t see a dime until you are paid off.

Your investment will be secured by a note. The details of this note may vary slightly from project to project, but that will be hammered out before any money changes hands.

The Return

The actual percentage may vary slightly from project to project, but currently, we are offering a minimum of 10% – 12% (depending on investment level) annually. This percentage will be paid in full even if we shorten the term of the investment. So, even if we finish and sell in six months you will still get the 10% – 12% as if the project had continued the entire year.

To illustrate, an investment of $20,000 would see a return of $2,000. This means that immediately after settlement a $20,000 investor would receive a check for $22,000, regardless of whether we finish in 3 months or 12. Compare that to the return of most investment opportunities, and we think it looks pretty good.

Getting on the Qualified Investor List

To hear about our project investment opportunities you have to be on our Qualified Investor List. Don’t worry, it is a fairly simple process.

Step One is understanding whether or not you are in a good position to be a Postgreen Project Investor. Here are three simple questions to which you should be able to answer yes.

  1. Do you have a minimum of $20,000 to invest? To keep our projects as simple as possible we have set an investment minimum of $20,000 (though some projects may have higher minimums). Naturally, you can invest more than this, but you will need to be able to commit to at least 20k to be on the list.
  2. Can you access these funds quickly? We will send out investment proposals and need answers quickly to move forward with the project. If you sign on to a project you will need to be able to provide the funds you wish to invest in as little as two weeks. We can’t afford to delay settlements while we wait for funds from investors.
  3. Do you believe in what Postgreen is doing? We really only want investors who believe in the projects in which they invest. You will, by agreement, be a silent investor. So, it is important for you to have confidence in Postgreen’s team and the overall vision of our company.

Step Two is sending us an email that briefly answers the three questions above and clearly states your desire to be added to our Qualified Investor list.

Curiosity or other, less savory motives may tempt some unqualified people to sign on to the potential investors list. We ask that you please refrain from filling out the form unless you are willing and able to put money into a project. We will happily sate your curiosity without this unnecessary deception. Just ask.

Questions

It is inevitable that I have missed some important information in this post. What else do you need to know about our program? Is anything about what we are proposing unclear? What else would you like to see in an investment program?

Ask away in the comments.

If you enjoyed reading this post I can promise you'll love our new writing over at Postgreen Homes. Yeah, we know that's the same thing your favorite band said and their new album is nowhere near as good as their early stuff, but seriously, we are actually still getting better.

There also isn't much conversation to be had here . . . at least not with us. So come on over to the Postgreen Homes Blog and tell us what you think of our new(ish) digs and crazy ideas. We will be sure to tell you what we think of your opinion.

{ 3 trackbacks }

Postgreen Investor Proposal: Skinny Project | 100K House Blog
June 2, 2009 at 4:34 pm
the latest architectural news » Postgreen Investor Proposal: Skinny Project
June 21, 2009 at 3:46 pm
Postgreen Investor Proposal: Skinny Project « the latest architectural news
July 17, 2009 at 3:55 pm

{ 14 comments… read them below or add one }

1 Grant February 18, 2009 at 7:17 pm

I can imagine that this is different from securities trading and stock sales, BUT…

When my company raised private investment capital via the sale of private stock, we were legally required to qualify the investors based upon their certification that they had a minimum networth and/or a minimum annual household salary. We were not legally permitted to take investment capital from anyone that didn’t claim to meet the financial qualification criteria so that we didn’t inadvertently cost someone that couldn’t afford to lose the money.

Did you receive counsel regarding how you set up this investment program, or was it your own idea? I don’t think that this would qualify as “friends and family” investments. Of course, it probably also isn’t under the same restrictions as the sale of private stock. For my own future reference, I’d be interested to know if there are no “qualifications of means” requirements for this kind of investment.

2 chad February 18, 2009 at 9:18 pm

Grant – Thanks for your concern. We came up with the basic structure with the help of our attorney. We are not selling stock or anything close to that structure.

Each deal will involve a small number of investors for a small number of homes to be built. We simply use notes to secure the investments. Once the homes are built and sold, the investment and the deal is done.

This allows us to have a bunch of small deals going at once with a large number of investors under different entities without getting into a complex situation where we are raising a large amount of capital for a grand business plan.

Like our homes, the beauty is in the simplicity…

3 Andy February 18, 2009 at 9:41 pm

I noticed the Qualified Investor Form isn’t a secure page (https). Call me paranoid but I don’t like sending personal info through an unsecure site. Can you change it to https?

4 Goran February 19, 2009 at 9:37 am

I big challenge with the 100khouse project, in general, is attempting to change the envelope for what buyers will consider as acceptable living spaces.
* different home layout (fewer partitions)
* fewer windows
* innovative lighting solutions (bare CFL)
* location (schools, transport, neighbors)
* etc.
The homes also have a strong design element associated with them (ie. modern).

These design and location details will impact how long a house will stay on the market before it is sold. I agree with your requirement for a “silent partner”, and do support what you are trying to accomplish. These projects will provide affordable, efficient housing, create jobs, and rejuvanate neighborhoods, schools, and so on. They will also help our society being to change their attitudes about what acceptable consumption is.

I’d be willing to invest in such a venture, as a completely silent partner, if the risk was pooled.

However, here the investments are tied to the sale of specific home. In that circomstance, I wonder whether it would be possible to have the design and location details of each new home laid out in advance, so that investors could have the opportunity to guage the sales risk of the specific project, before deciding to tie their investment to it?

Not sure if that makes sense. Yes, on silent partner in an individual home, but only if enough up front information is provided for investors to guage the sales risk before deciding to invest. Or yes on completely silent partner with pooled risk.

5 Goran February 19, 2009 at 10:00 am

Make the above is overcomplicating things. What happens if a project doesn’t sell in 12 months? 24 months?

6 Nic Darling February 19, 2009 at 10:33 am

Andy – Maybe its the fact that both Chad and I have foolishly spread our personal info all over this Internet, but that one totally got by us. We are going to work on switching it over today.

Goran – The sign-up list does not commit the investor to any specific project. It merely puts them on a list to receive project proposals. These can be judged on their own merits and the potential investor is free to jump on board or pass.

Basically, once we find land we wish to develop, we will put it under contract. Then, we will either attempt to presell the house(s) we intend to build on that land prior to purchase OR we will decide to buy immediately and build on spec. Either way, a project specific proposal, complete with all the necessary information and numbers will be presented to our investor list. The first qualified individuals to respond to that proposal will become investors in that project.

Does that make sense?

7 Nic Darling February 19, 2009 at 11:55 am

Andy – I got lazy. Securing an individual WordPress page is not as easy as I had hoped. Combine that with the fact that we are currently redoing the Postgreen site behind the scenes and it was just too much work to figure out. I did, however, add a couple of other list joining options for those shy about the form. I think the information being sent is benign enough that most people won’t mind and those who do can contact us directly.

Thanks for pointing the issue out and hopefully my temporary fix will provide an avenue for everyone who wants in to sign on.

8 chad February 19, 2009 at 2:07 pm

To clarify further, most likely any project proposal that we send to the investor list will include at least one pre-sold home. Banks are just not looking at spec projects any more. They want and need pre-sales.

9 goran February 19, 2009 at 3:35 pm

Not being an expert investor, I’m not sure what it means to be next in line after the bank. Can you provide a detailed explanation of what will happen if the project doesn’t sell, for any reason? If the bank is owed $50K, for example, will they be able to sell the property for $50K at some point, to recoup their money? What happens after 12 months, 24 months? How is the sale price set if the property continues to sit on the market?

Can you talk about what mix of money you’re looking to fund the projects? How much bank money, how much investor, how much of your own money?

I assume that the interest payment is not just for the use of the money, but to carry the risk of loss of the investment. Can you describe the down side in more detail? Under what conditions would an investor lose the interest, or their investment?

10 chad February 20, 2009 at 3:14 pm

Goran,

These are good questions. I’ll do my best to try and address them all.

As with any investment, there is risk involved. We have done our best to structure our investments in such a way that will minimize the risk of the investor as much as possible.

First of all, Postgreen takes their profit at the end of the project after both the bank and the investors are paid back. In order for the investors’ monies to be threatened at all, the entire profit margin calculated for Postgreen would have to be used up. The specific proposals will provide these calculated profit margins based on the estimated sales price.

If any of the homes in a project that are not pre-sold do not sell quickly, the price will be lowered to sell and return the investors’ and banks’ monies in the time agreed upon. If Postgreen needs to extend the 12 month investment period, then we would do that in writing and compensate the investors with additional interest. Postgreen will determine the sales price and any changes in the sales price as we see fit to satisfy all parties.

For each project, we need to raise a minimum of 20% of the total project costs from investors and the participating bank will fund the remainder, up to 80%. These percentages may vary slightly but this is a good ballpark. Postgreen may contribute a portion of the equity in some projects and may only contribute a very small percentage in others.

Postgreen has worked very hard to establish a niche in a price range ($200K – $300K) that continues to sell in a poor market. We do not encounter the steep market fluctuations that higher end homes selling for over $400K do. This allows Postgreen to sell our homes faster and closer to our estimated sales price than other developers.

Again, these are general terms and we will not be able to answer all of your questions until you have a specific proposal to review with us. Hopefully this answers some of your preliminary questions and concerns.

11 Damon February 20, 2009 at 10:59 pm

With this type of success in the sales department I would not pursue any investment partners. My experience has shown me that even the most passive partners get in the way of flexibility and future success. You should use your profits from these three sales, burden the last home with extra debt and move forward on your own. If your current project is performing this way, you should have most local banks willing to engage in future development. In a climate where most product is sitting, you have proven pre-sales. This is almost impossible outside of Rittenhouse Square.

This may not be your desire, but I think you should consider my advice.

12 Kevin D February 22, 2009 at 4:51 pm

We’ve been pursuing a similar business model in Denver. The main difference is that we have been keeping the target neighborhood relatively “secret” because we felt it would maintain low prices during the land acquisition phase.

http://www.sobodwellings.com

Another nice difference is that the land comes with a little house that rents for around $1000/mo. That means our land is carrying its own weight, and we have the luxury of waiting to scrape and build until the market is in complete recovery.

The 100K house project has taught everyone that a truly innovative product plus effective internet branding equals presales. The neighborhood choice of “gritty walkable” (like ours) was also key.

13 Jim February 22, 2009 at 7:30 pm

Are you looking at all at licensing your designs for use by others?

14 chad February 26, 2009 at 8:30 pm

Thanks for the advice Damon. We are definitely cautious about the investors we choose.

Thanks for the complements Kevin. As you can see, we’re not too good at keeping anything we do a secret. It’s not really our business model I guess and so far so good.

Jim – We are considering a stock plan type of sale in the future. We have a lot of details to work out and are a bit cautious at this point of builders not following our plans the way they are intended or builders flat out stealing the plans and building hundreds or poor replicas. If not executed properly on our end, any number of things could give us a black eye very quickly. We still visit our site every day to make sure everything is going according to plan as intended…

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