Minneapolis Residential Real Estate Investment Partnership

1. Minneapolis Residential Real Estate InvestmentPartnership Easier and more profitable than you imagined! Konrad Wagner MINNEAPOLIS: (612) 619-2126 | TORONTO: (416) 619-4701 kwagner@Fortunemetrics.com 2010-08-15

2. The Objective • Own a property which: • Is a residential single-home property located in a middle-class suburb of Minneapolis, MN • Provides income payments in USD, secured by US property • Has substantial opportunity for growth in resale value • Provides a positive cash flow on a monthly basis after expenses • Has a rental value greater than 1% of the purchase price (after repairs) • Targets a 100% payback over a 5 to 7 year investment horizon

3. Approach • Buy residential properties in suburban Minneapolis which have been foreclosed upon. Financing is not available through banks, so the partners must provide the entire purchase price on closing • We will only buy properties that are selling for less than 50% of their value in 2007 and require minor repairs over the next 5 years (typically less than 10% of the purchase value) • Two parties will be involved in the purchase: • The Finder (50% equity) – Find and manage the property. • The Venturer (50% equity + 100% loan) – provide a 6.5%/year loan instead of a mortgage on the investment property. • Both parties will receive the same fees and payments, except that the Venturer will also receive the 6.5%/year interest payment, paid monthly.

4. The Investors • contribution of $10,000 investment. • contributing the “Loan” amount to the partnership. • contribution of $10,000 investment. • search of property, inspection, • knowledge of local area • completion of purchase, • arranging of repairs/maintenance, • dealings with property management company, • accounting, paying property taxes • payment of expenses including property insurance • investor/partnership payments The Finder The Venturer(s)

5. Equal Equity Ownership Identifies and purchases the property. Manages improvements, insurance, property tax, management company, and other business aspects Provides the loan for the property, improvements, and transfer fees. 50% 50% The Finder The Venturer(s) 50% ownership means 50% sharing of net profits from the rent (after expense and Venturer’s interest payment), and 50% sharing of the profit from the sale after all sales costs and repayment of the Venturer loan.

6. The Investment (How it Works) $10,000 USD The Finder $10,000 USD Investment property owned 100% by Partnership The Venturer(s) Partnership Loan

7. Payout (and Priority) Rent Collected • Business Costs • Condo Fees (if applicable) • Property Tax • Property Management • Company • Property Maintenance • Costs (if required) • Insurance • Loan Interest Payment • Venturer’s Partnership • Loan Interest (6.5%/yr) • Profit Sharing • Remaining profit from rent is paid out at 50% to Venturer and 50% to Finder Note: Venturer’s Partnership Loan Interest is paid monthly from the rent receipts. If property is not rented, the interest payments are accumulated and paid after the property has attained a positive cash flow.

8. A Real Life Example (Background) • Condo was purchased on May 26/2010 • The condo: 937 Sq Ft, 2bdrm, 1bath, wood fireplace, garage, central air conditioning / heating • Previous Sale price: $106,000 (in April 2007) • List price: $44,900 • Sale price: $42,500 • Total cost of repairs: $2,500: Carpet removal, new laminate floor, paint, broken window, minor repairs, and cleaning.

9. A Real Life Example (Funding) $10,000 USD The Finder (Konrad Wagner) $10,000 USD Property purchase: $42,500 Repair Costs:$2,500 --------------------------------- Total Cost: $45,000 The Venturer (not disclosed) Loan $25,000 USD

10. A Real Life Example (Monthly P+L) Rent Collected ($900/month) • Business Costs $343 • Condo Fees ($150) • Property Tax ($106) • Property Management • Company ($45) • Property Insurance • Costs ($42) • Loan Interest Payment $135 • Venturer’s Partnership • Loan Interest ($135) • Profit Sharing $421 • Venturer – $210 • Finder – $210 * All figures rounded to nearest dollar

11. A Real Life Example (ROI) • At $210.61 profit per month, the $10,000 investment will take ~47 months (4 years) to achieve a 100% payback • Should the market rebound 50%, the $42,500 property will be worth $63,750 (still less than 2/3 of the selling value in 2007). This would create a $21,250 gain in equity for the partnership • Both investors will own $20,625 in equity and have collected $10,000 representing a 206.25% overall ROI (Return on Investment) • In addition, the Venturer will have collected $5,850 in interest (guaranteed payment) over this period for his loan of $25,000 • The agreement provides for the sale of the property at any time after an increase of 25% over the price paid should either party want to realize their capital gain, or the Venturer desire the return of his loan principle.

12. A Real Life Example (Sensitivity Analysis) Returns over 4 years A 50% decline in property value would result in only 11% ROI loss A 25% increase in property value would result in a 157% ROI – still at only 53% of 2002 sales price! Even if the property does not appreciate, a 101% return will be achieved in 4 years!

13. A Real Life Example (Worst Case) Even if values decline, the longer you hold the property and collect rent, the higher the return. A worst-case 50% decline in property value would produce a 140% ROI in 10 years

14. A Real Life Example (Cost of Borrowing) • Venturer’s choose from several ways to obtain the resources for the partnership loan including: personal capital/savings and institutional borrowing (banks) • Often, borrowing from the bank is the most viable option and provides the greatest incentive even if the venturer has the capital to loan to the partnership • Since the partnership pays an interest on the loan provided at 6.5% per year, given the low interest rates in the market today, one can make a profit on borrowed bank funds. • In this specific scenario, the Venturer obtained a line of credit at 3.5% interest on the $25,000 loan (approximately $875/yr). From the partnership, the Venturer receives an interest rate of 6.5% or approximately ($1625/yr) on the loaned sum. This translates to a profit for the Venturer of $750 per year after making all bank loan payments. • The Venturer here has a margin of 3.0% meaning that even if the interest rate goes up by 3% the cost to borrow funds will not exceed the amount of interest payment the Venturer receives from the partnership. *Bank prime is currently at 2.75% [source]

15. A Real Life Example (Cost of Borrowing) The table below illustrates the profit (or cost) of borrowing bank funds given the specific institutional interest rate and the partnership rate This means that the Venturer will have profited $3000 from the bank loan in 4 years if his rate stays the same. Even if the interest rate were to triple to 10.5% (an unlikely scenario), the cost to the Venturer will be $4000 after partnership interest payments after 4 years, much less than the $10,109 collected in profit from the venture (a $6,109 profit). This scenario doesn’t consider any appreciation in property value – so realistically the overall profit can be expected to be much greater. In the condo scenario the Venturer was able to obtain a line of credit at 3.5%

16. Why Minneapolis? • Existing contacts and relationships: • Your Finder knows the area very well and can handle pre-purchase and property management arrangements. • Your Finder will spend at least 1 week/month in this area, and handle maintenance and transactions in-person. • Use of proven property management company, real estate brokers, and contractors. • The American Mid-West is a top place for property investments: • Good employment numbers: 19 Fortune 500 companies are headquartered in Minneapolis. • Property values are at 40-50% of 2007 prices. • Large percentage of foreclosures and short sales. • Rent to Purchase price ratio of over 1%!!

17. FAQ 1 • Why is now a good time to invest? • Property prices are 40-50% of their price from 3 years ago • Sales are down 40% from last July , due to expectations about a double dip and a home buyers tax credit expiration. This provides an opportunity to negotiate with the banks over sale price. • Now is the time to purchase investment property while fear is high and inability to attain credit is rampant for the locals. • The Canadian Dollar is very strong and will get you a good exchange for USD (~1.025) • All rental income property ratios are very strong (Rent / Price > 1%). ZIPRealty.com

18. FAQ 2 • Are we going to be flipping properties? • Not really. The goal is to maintain a long term investment(5-7 years or more) so that we are not subject to fluctuations in property values. • However, the plan is not to sell unless there has been at least 25% appreciation in value of the property. So, if you’re looking for a very quick turn around, this may not be for you. • What about bank financing? • Canadian Banks will not lend money for investment on US property. • For US Bank loans, 2 years US income needs to be reported to qualify – plus, US banks have made it difficult to attain a loan (partially the reason this opportunity exists) • Venturers may choose to use a line of credit to raise funds for the Loan. As most lines of credits charge 3-5% annually, the 6.5% investment return provides the investor with a positive net interest income. Profiting from the bank’s loan!

19. FAQ 3 • What happens if property values/economy go down? • Since we own the property outright, there is no risk of foreclosure by banks. This means that we continuously keep cash flow positive as long as the unit is rented. • In our Real Life Scenario, we discussed that even if the market drops and the property loses 50% of the value in the short term, a profit will still be made if the property is held long enough. It is expected that property prices will eventually return to ‘normal’ levels and the investors will benefit from the appreciation in price as well. • If for any unforeseen circumstance the partnership is FORCED to sell at a loss, the funds from the sale will be paid out (after closing costs and taxes) to the Venturer up to the sum of the loan, then any remainder equally divided by Venturer and Finder. • What about US income taxes? • US income tax needs to be filed, but income after expenses will show less than the basic personal exemption amount per year and taxes can be filed online using a free tax system (Turbo Tax). We can walk through this together. You can also find more information on our Blog at www.fortunemetrics.com/fortuneblog.php

20. FAQ 4 • Why does the Finder not provide part of the partnership loan? • Being involved in many partnerships, it is impossible for the Finder to obtain the financing needed to provide 50% of the purchase amounts on every property. If this were possible – the partnership model would not be necessary and the Finder could purchase all property solely. • Having the Venturer use his finances or access to credit allows for the partnership to purchase the property. In return the venturer receives an attractive interest payment in return – as well as the opportunity to comfortably invest in an area where they are not as familiar. • What are the ways to terminate the partnership? • Both parties to mutually agree to sell the property. Assuming property has appreciated to a value of more than the investment, improvements, and transfer costs, this is a viable option. • Either partner may buyout the other partner, at any time, based upon a fair and equitable value, as defined in the Partnership Agreement. • The property may be sold and partnership terminated at any time after 4 years, or an increase of 25% over the price paid.

21. FAQ 5 • Will principal payments be made on the Venturer’s loan? • No, the 6.5% is an interest-bearing loan, not a mortgage on the property. • The principle will be repaid when: A. the property is sold, or; B. bank financing is obtained • Is there any risks involved with interest rates? • This depends on how financing of loan and investment is achieved by Venturer. If the Venturer uses a bank to finance their loan, then they are subject to the risk of interest rate increases. In this case, as long as the interest rate remains below the partnership interest rate (6.5%), the Venturer is making a profit off of the bank’s money. If the interest rate goes above the partnership rate – other factors must be considered. For example: • Is the cost of borrowing greater than the profit generated by the partnership? • Has the property appreciated in value allowing for sale or a bank mortgage to be obtained? • Should some of the principal of the loan amount be paid by the Venturer to reduce interest payments while maintaining loan partnership interest income? • Will principal payments be made on the Venturer’s loan?

22. FAQ 6 • What are the qualities of an ideal Venturer? • The Venturer will recognize the opportunity for US investing at the current state of the US economy, value of the Canadian dollar and the buyer’s market for real estate in US areas. • The Venturer will need access to funds in order to provide the partnership with enough funds to purchase property (funds provided just before closing of property). • If necessary, Venturer should speak to their bank in order to find out what types of loans they qualify for prior to agreeing to purchase property • The Venturer should be comfortable with a 4+ year timeline for the investment to mature and for property values to increase. The goal of the investment should be to provide long term residual income from rental profit and eventual capital gain from the sale of property after appreciation.

23. Next Steps • Perform your own due diligence: • Look at properties in the following Minneapolis areas (zip codes) on MLS.COM or ZipRealty.com: • 55443, 55429, 55430, 55428, 55444, 55421, 55369, 55432 • For more information, please contact : Konrad Wagner Mobile: (612) 619-2126 Home: (416) 619-4701 Email: kwagner@fortunemetrics.com