Need Investor
I am new to this (obviously).
I have found a property in West
Texas (no liens), 5300 acres,with 312 old oil rigs on it. The rigs need to be
replaced to bring the property up
to full operating capacity and create
a cash flow. I do not have the income
to go to a bank to qualify to buy into this
property and its related development. Is
getting an investor the way to go, and if
so, where do I start? The appraisal, with
160m barrels of reserves, is 4 billion USD.
50% ownership can be bought for next
to nothing (owners are very motivated as they are currently cash poor and do not qualify for a bank loan). Where do I start or should I even bother with this kind of property? Any help greatly appreciated!
My email is found on my profile page.[ Edited by hughes on Date 07/04/2003 ]
I'd call this a red flag. What do the rest of you think? Something doesn't sound right...How did the owners get cash poor? You don't have to give up now, but you need to ask some more questions and just ask them directly. See if they'll let you see the books on the business to prove their is positive cash flow - ask for the last 2 years or so. If they don't let you see them TELL THEM that you can't make any kind of decision on the usefullness of the property without such information. Be serious about this - you are in business to make X% of money off your investment, not in business to save people, unless you're starting a charitable organization. If you realize you can't make an exceptable profit WALK AWAY!!!
Also, since you aren't just talking about real estate you need to realize there are two seperate issues to examine:
First, the actual property. What is a property out in in Texas worth when the oil runs out? How long is that going to take?
Second, the business. Again, when's the oil going to run out? Will you still be paying off mortgages on the property when that time comes? How do you really know the oil will last that long? Is there a positive cash flow?
Examine these two ideas and take a deep breath, sit down and put everything on paper. How much cash is it going to take to get everything going including securing the property and replacing the oil thingies? What positive cash flow can I expect from this once everything is up and running? (take these two numbers broken down in one year at a time and come up with a percentage and that's your yearly RETURN OF INTEREST or YEILD). Then ask yourself what this property can resell for. Can you sell it for more? or will it be less, shouldn't go down too much or your overall ROI can go down to nothing or maybe even give you a loss.
This brings you to the last question: What should I OFFER to make my ROI the percentage I WANT IT TO BE. This is what you offer the sellers, absolutely no more and if they don't take it, walk away.
BTW-If the amount you come up with to offer is a negative number, this is the amount the sellers need to pay YOU to take the property off their hands.
The other question that I would ask is "what do I know about the oil business".
I for one know a fair amount about RE but would not be comfortable walking into a oil business.
I know nothing about oil exploration, sales, refining, etc. I don't even know what I don't know. Perhaps the land has environmental damages that need to be repaired. Perhaps it needs to be developed as part of the contract.
I'd be extremly cautions going into this deal. There are hundreds of places where you go wrong on this deal. Make sure you KNOW it is a great deal before you go into it. You may try to get it under contract but give yourself plenty of time to do the necessary due dilligence.
Thanks Kelea and Hibby,
and thanks to anyone who
posts advice after this message.