Funding the LLC
To have the funds available to purchase the highest valued liens and still spread the risk out, a minimum of $30,000 needs to be used in October to purchase liens. These purchases should all be made at the same auction.
There are two strategies for funding the investment. A decision by all of the partners on which strategy to use must be decided before the first auction.
The first is to fully fund the LLC at the outset. This would mean an initial funding level of about $75,000. During the first auction, approximately $30,000 would be used to purchase liens and the additional $45,000 would be invested in a nine month CD to be used for the endorsements in July. Any funds still available after making the endorsements would be invested in 12 month CD's to be available for the next year's endorsements.
The advantage of this strategy is that there is no concern that the LLC will lack funding. Full funding is available from the outset. The disadvantage is that the cash on cash return of the investment will go down since a large portion of the investment will be in lower return investments (CD's) for a long period of time.
The second is to fund the LLC with $30,000 in early October and use these funds to purchase liens at the October auction. Then in early June of the next year, add additional funds to the LLC to cover the endorsements of liens that have not been redeemed. By this time, there will be cash funds in the LLC from some of the liens that have been redeemed. These funds will be first used for the endorsements, then additional funding will be requested. This process would be repeated during the next two years.
The advantage of this is that the invested funds will immediately go into high yield (14% or so) investments so the cash on cash return goes up. The main disadvantage is that, should the investors NOT be able to or wish to fund the endorsements, the LLC could lose a large portion of the first liens. The largest return on investment will come from taking title on a lien. If this isn't funded for the full three years, the LLC cannot take title.
This is a generally safe, though very long term investment. For a hard copy of the full proposal please send three dollars (to cover postage) to:
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