How Spanish Explorers From 1519 Can Help You in Raising Private Money

Back in the early 1500’s, Spanish Conquistador Hernando Cortes set out to land in Mexico. His plan was to take over the Aztecs. Before landing, a good idea came upon him: burn his ships.

What?

Why would someone burn their only form of transportation?

Cortes burned his ships because then his men would have no choice but to win/conquer. There could be no retreat. No deserters.

A pretty brilliant strategy if you ask me.

And, entirely relevant to raising private money for real estate. Here’s why…

For far too many real estate investors, private money is just a ‘nice option.’ You know, one of those things that ‘would be great’ to have, but not devastating if you can’t seem to crack the code. For many, if they don’t get private money in the first five minutes of trying, then just reverting to the vaunted (and over-hyped) creative financing, zero cash out of pocket approaches is acceptable.

I’ll tell you – when I first started raising private money, I didn’t know what the heck I was doing. Constantly beating my head against the wall wasn’t fun. But I eventually raised my first $100k and kept building. Along the way I learned, and put systems together. I did this not because private money would have been ‘nice to have’ – it was because there was no other way I was going to able to do the deals that would put cash in my pocket.

When the banks and mortgage companies started shutting me out, and creative seller financing strategies went up in smoke (as equity values evaporated in my area), there was no other option for me to keep doing deals and stay in business.

The ships were ‘burned behind me.’

And I think this is the way you have to look at anything if you’re serious about hitting your goals, no matter what they are – but especially with private money.

Each time I talk to a real estate investor who tells me they tried to get private money and ‘it didn’t work’, I ask them the following questions:

Do you have a complete, printed and bound business plan to show potential private investors?
Do you have an effective pre-qualifying mechanism/script in place to sift and sort the tire-kickers from the real investors?
If I called the top 20 most frequently called people in your cell phone, would each of them know – unequivocally – that they could invest money with you for great returns and with zero hassle (for 99% of real estate investors, the answer to this question is no)
How much time do you spend per week on raising private money (marketing your opportunity, working on referrals, etc.)
Do you have a turn-key private money referral system in place?
If you owned a dry cleaners or sold insurance, and that was the only way you could make money, how would you go about getting clients? (hint: directly apply this to raising private money)

If the investor can’t come back immediately from each question with a clear and concise answer, I know they haven’t totally committed themselves.

As I’ve said before and I’ll say it again – private money isn’t for everybody. If you’re happy trying to finagle seller financed deals (if you can – and to do that consistently) or if you want to try to play games with mortgage companies and hard money lenders (be my guest) or if you just plain aren’t into using other people’s money (maybe you prefer to use or have your own) then private money may not be for you.

But… if you want to have complete control in every deal, if you want to call the shots, if you want to make more money and not be subject to the whims of bailed out banks or loan shark hard money lenders, well, then it may be time to start getting serious about private money.

Take a good inventory of the above questions (be honest). If you haven’t yet gotten to the point where you are absolutely committed to raising private funds, consistent (if any) success will be elusive.

You have to burn the ships behind you.

Private investors will pick up on your level of professionalism and commitment as well, and will be more inclined to invest with you. This type of focus is magnetic. It will work wonders for you. Give it a try.

-Happy Investing

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.