Piggybacking on my last post, “The Importance of Being Nimble“, I’d like to blog today about something that is absolutely critical to your ongoing investing success: raising capital.

In my opinion, it is a skill you must develop.

Must.

Not should.

Must.

Once you become very very good at raising capital, any amount of capital, you can accomplish anything.

Start any business. Buy any asset/investment. Build a nonprofit. Run a political campaign. Anything.

Get my point?

OK, now to the ‘how’.

This blog may disappoint some of you because raising capital is actually not a science. It’s an art. And you won’t become an expert by reading this blog. But, I hope it will open your eyes to a few things.

First of all, here are some ground rules.

Rule # 1: GET OFF THE COMPUTER! You cannot raise capital in chatrooms and forums. You have to get outside and network and mingle and talk to people. In person. Find common interests. Love golf or tennis? Join a high end country club. Get involved in charities. Like poker? Get the point? This is especially true for those of us among the ‘younger’ set.

Rule # 2: Relationships. Relationships. Relationships. Relationships. Relationships FIRST.

GIVE first. Focus on the RELATIONSHIP first. You will be engaging with very wealthy people who get hit up all the time for donations, investment opportunities, etc. They can invest with anyone. Why you? Why your deals? You don’t want to be one of those people looking for a hand out. You want to be a friend who also happens to have some good deals from time to time. Take your time. I sometimes know people for over a year before I even bring up a specific deal (after I’ve played tennis with them several times a week, gone to poker night after poker night, went to their parties and vice versa, hung out with their families and vice versa, etc …. they know what I do and most of the time actually end up asking ME if I have anything for them … “I don’t know, John, let me see if you’d qualify”).

This will help you: (a) establish trust and (b) learn more about their personality/demeanor, investment criteria, financial profile, and snap shot of current cash position (the last thing you want to do is put the wrong investment in front of the wrong investor).

Rule # 3: See rule #2.

Rule # 4: You still have to have a GREAT deal. You can have a strong relationship, but you ultimately want to establish a reputation for yourself as someone who deals happen to just follow around wherever you go. You’re a deal magnet. And you work hard to attract those deals and vet them before spending any of your investors’ time and money.

Rule # 5: See rule #2.

Rule # 6: You are not a salesperson. There is no SELLING involved here. After you have a great relationship and a great deal, either the investor will be interested in seeing a presentation or they won’t. If not, just leave it alone. They’re missing out, but just leave it alone. After all, you are not SELLING investors, you are SORTING through investors.

Finally, you must communicate with your investors once they’ve invested with you. You must
keep them informed, briefly and concisely, that you’re working hard on their investment to ensure their return materializes.

So, this should be enough to get you started. Work hard at building relationships first. Consistently bring great opportunities and don’t be bashful about asking for interest (and referrals once they’ve invested and have become cheerleaders of your deal).

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Tags: finance, financing, money, private money, raising capital

Well, pretty much everybody raised their hands at my club meeting last week when I asked this question.   Boy you can’t swing a dead cat around without hitting an investor who is looking for private money these days huh?  To be frank - I’m getting kind of bored hearing so many investors tell me this same problem over and over again.  The scariest part is that some of these investors are brand newbies or they don’t have any deals what-so-ever to offer a private lender.   Come again?

Now I don’t mean to sound so grouchy about this subject, but raising private money is no different than finding deals and finding buyers.  It’s work work work!  When I ask investors what they are doing to “raise private money” I am getting pretty much the same answers… which is not much.   Now call me crazy, but if we aren’t marketing to folks who may have money to lend us - then how do we expect to Raise Private Money?  Or if our only form of “advertising” is going to be real estate meetings where other investors are looking for money too - good luck.  No my friends, this simply won’t do.

The only way that I know of to raise money successfully is to advertise for it.  And by advertising I mean YOU are the advertisement!  Marketing non-stop, all the time, telling everyone you know (outside of your investor world) in some form or another.  Just like you would be doing to buy houses and to find buyers. 

In a nut shell:

1.   Tell everyone you know that you are a real estate investor and tell them about your real estate investing business.  Tell your neighbors, your friends, your family, your Doctors, dentists, lawyers, plumber, every new person you meet… everyone!   When you start with this -people inevitably are going to want to know more about what you do.

When you get to the point when you have a deal or two or five under your belt - then move on to a whole marketing campaign on Raising Private Money.  This is what I do now.  I send out direct marketing to folks ( I bought a list from a list broker) letting them know that I can teach them how to earn 8 - 12% on their money by being a Private Lender.  Just like I do to find sellers of homes.  I send out direct mail saying that I can buy their home.  Just like I am about to do to find buyers - market to them!

2.  Have deals to tell people about!  Duh… this is a no-brainer right?  Well I am surprised when I ask investors if they have deals already in place to offer a private investor and they say No. (Or worse, they are not even currently marketing for deals.)  Wowee Kazowee.   

It is a two fold operation that must be happening at all times.   Talking to everyone you know who might have money - either in the bank, in a 401K, in a pension, stuffed in their mattresses - and getting deals all the time. 

3.  How do you have deals all the time?  Market, market, market.  How can an investor be worried about raising private money if you don’t have deals to talk about?  I hear it all the time… “well I don’t want to find deals if I don’t have the money to buy them”.  This is the wrong attitude all together.  When you have really good deals - you will find the money or the money will find you -period.  Notice that I said - “good deals”.   I have had my own experience of having a hard time finding money for deal or two.  I recognize it was because they weren’t good deals after all!  Just because we know of a property that is for sale - doesn’t mean it’s a deal.  Oy - I get shivers down my spine at the hard lessons learned there…  Rule #1 - know your business!

Now - Raising Private Money is a whole workshop in itself.   But the bottom line is that we must work our real estate investing business all the time.  Finding private money is a lot of work.  But this whole business is a lot of work.  If you want deals - you must work hard to get them.  If you need private money, you must work hard to find the people who might be interested.  If you need buyers - you must work hard to find them.  It’s not brain surgery - but it is hard work.  (Did I mention it is work?)

If we don’t do all of this, all the time, then forgetta ’bout it.   Find another hobby. This business is not for you.

(Again - sorry for being Ms. Grouchy pants right now.  I think that after hearing about 30-40 investors tell me in the last week that they were not really doing any of the above to accomplish their goals for raising private money - I had a moment of OH -SNAP!)

Photo Credit: Refracted Moments™

Tags: money, private money, real estate, real estate investing, real-estate-finance

If I could just take a few moments and vent about my frustrations with real estate investors who do not follow formulas and do not stick with systems. Sheesh! If it isn’t one bad deal working it’s three bad deals working. Are times that bad that you have to reach for a good deal? NO! Are times that bad that you need to cut corners to make the deal favorable? It is never that bad. Have real estate investors forgotten their original high standards? Maybe so. I know one thing though, Investorino has lost its mind this month.

For those that don’t know me very well, I like free and clear investment structuring. My mentor has given me more than enough incite on how to creatively purchase free and clear real estate. So I have a very hard time seeing and believing the types of deals that are pieced together as though no rod of measurement is being used at all. Well, the name of the game in free and clear is that if the seller has time you have money and if the seller doesn’t have any time you don’t have any money (or much even) to give them. You can certainly pay upwards of 100% of a property’s value today, but the only catch is that price is going to be paid in one lump sum way later or paid over the course of time with agreeable terms.

So Investorino is strapped for cash. NO PROBLEM, because he’s got a great relationships with private lenders. He sees a killer free and clear property that is worth maybe $145,000.00, and it is time to do something a little creative. The subject property needed about $30,000.00 in repairs, so Investorino came up with a special big money down, monthly payment, schematic that the seller seemed to be fond of. The terms of the purchase were $40,000.00 to the seller at the transfer of title and 95 monthly payments of $1000.00. Target rent on houses within the subdivision with the same specs was approximately $1400.00 per month.

Does everyone see the cash flow?
Yes. Now let me show you a magic trick. I can show you how to make cash flow disappear (not that you really wanted to learn anyway). Investorino is going to solicit private funds for $85,000.00 to be disbursed as follows: $55,000.00 is to be made available for the jumbo pay at the title transfer for $40,000.00, to take care of any of the closing costs, and undoubtedly put some aside as a small reserve for the $1000.00 per month payments. $30,000.00 was to be used for the repairs.

Now if you think the bank was tough; check out these terms.
12% interest only on a year term with 5 points upfront and a 2 point renewal after each 365 days. Because Investorino didn’t want guarantee the deal with a partner or personally, the private lender decided that he wouldn’t provide the $30,000.00 in cash for the repairs and would like to see the finished project prior to submitting those additional monies. Uh-oh.

So now Investorino has to pay an additional $550.00 per month on a non-occupied property that needs $30,000.00 in work. Did you see it disappear…the cash flow? I did. Oh wait! Where is the $30,000.00 going to come from? Remember the property was free and clear of all mortgages and liens. The sellers will be in first position with the outstanding balance of $95,000.00, the private lender will then be in 2nd position with the $55,000.00 loan, and now there may be a 3rd mortgage needed to see this deal to the end. So this transaction is yielding about $5,700.00 to Investorino at the transfer of title. That amount is certainly not enough to get the ball rolling a the repairs.

Ending A: $30,000.00 magically appears in his account from an anonymous donor and the work is completed. Now the private lender will pay $30,000.00 to Investorino on which he will then pay an additional $300.00 per month for the adjustment in the loan amount. BOO! So now we are at $1850.00 in outward payments. Keep in mind that the market rent is based on those properties in rental condition and we can assume that this one is not. So now instead of losing $150.00 if he would have put a person in the property in its condition, he loses $450.00 per month because of the post-rehab disbursement. I told you it was magic.

Please be careful. This is about staying on the course and sticking to the formulas. Private lenders throw the formulas off all day long. Account for it and make a true adjustment in your purchase activity.

Blessings to your Real Estate Investing Success,

Milton B. Yates

Tags: creative real estate, hard money, learn real estate investing, private lenders, private money, real estate, real estate investing, real-estate-deals