Mortgages & Creative Financing

5 Surefire Ways to Drive Away Potential Investors

Expertise: Business Management, Real Estate Investing Basics, Personal Finance, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
107 Articles Written

If you attend local real estate clubs or real estate seminars frequently, you undoubtedly have met people who have presented you with "the deal of the century." This happens to me all of the time. I will meet someone, and after speaking with them for a few minutes, I start to realize that their ultimate goal is to find out if I want to invest my money in their deals.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Now, there is nothing wrong with networking and raising money for real estate deals. In fact, this is something that all of us need to know how to do as real estate investors. However, as someone who also invests passively in other people’s deals, there are some things that I as an investor look for before giving my money to someone else. First of all, I need to get to know you and trust you, kind of like dating for a while before getting married. Sometimes people jump into the proposal without taking the time to find out if the investor is even someone who would follow through.

My Example

I was in Orlando recently teaching for a self-directed custodian company on tax saving strategies for real estate investors. Since I did not go on stage until the afternoon, I decided to spend the morning in one of their break out classes to learn some new real estate tips. About two hours into the class, I decided to get up and get a cup of water at the back of the classroom. As I drank my water, a nice man came up and introduced himself to me as “Jim from Texas.” He politely asked where I was from since the majority of the students in the room were from out of state. I replied that I flew in from Orange County, California the previous evening to attend the event. The very next thing that came out of Jim’s mouth was, “Would you invest with me?”

Now, some of you may think that I am kidding, but I can tell you that this is exactly how the conversation went. Two sentences after meeting him, I was asked if I would invest my money in his deals. After taking a hard gulp so that I didn’t spit out my water, I managed to gather my thoughts. Had I heard him wrong? It was impossible that a person I had just met ten seconds ago was already asking for money for his real estate deal, right?

Just to be sure, I politely said, “Excuse me? Sorry, I didn’t hear what you said.” Jim then replied, “No worries. I asked if you would invest in my real estate deal.” Then there was silence. It was as if this was the end of the story. Jim did not elaborate more on what his deal was, where his deal was, or even why I should consider investing in his deal.

If I had the time to play out this scenario a little longer, I probably would have jokingly replied with, "Why of course. I would love to invest in your deal. Who should I write the check out to, and how much do you need?" Unfortunately, I needed to get back to the class and did not have the time to carry on this comical conversation with Jim. Instead, I thanked him for the offer and excused myself so that I could quickly leave the situation.

Related: How to Raise Money for Your Real Estate Investing

This, of course, does not happen everyday. I often come across people who will tell me about a deal they have after speaking with me for a while, and other times, people will ask permission to see if it is possible to send me some information. This was the first time that I met someone who was so clueless as to jump into a proposal without even knowing my name. But thanks to Jim, I was provided with this opportunity to share what NOT to do when trying to raise investor money.

What NOT to Do When Raising Investor Money

Scare People Away

Jim is a classic example of what not to do when meeting with new potential investors. As with anything else in life, we need to have some common sense. Most people will not invest with you if they do not know you and trust you. So even if you have the deal of the century, do not ask for money from strangers you just met at an event. Take your time, and wait for the right opportunity.

Get Married Before Dating

Not all money is good money. Having a bad investor in your deal can literally kill the deal entirely. You would not want an investor to give you $10k for your deals and then call you every single day asking about their return, right?

Take the time to know who this potential investor is as a person. Knowing how someone acts under pressure and what their expectations are can be the key to ensuring that you and your investor have a long and prosperous relationship. Take your time to “date” each other first to see if this relationship can last.

Fail to Understand Your Audience

Know who you are speaking with, and know what the potential investor is looking for. The potential investor may be someone looking to turn a quick profit and could be your hard money lender on your next flip deal. Alternatively, maybe they have some money in their retirement account and are looking for a safe stream of income. You could use these types of investments as trusteed notes on your rental properties. Ask the potential investor questions to learn about what they are looking for so that you can position your pitch accordingly.

Related: Opinion: You Should Use Money From Friends & Family for Investing

Give Away the Farm

One mistake that I see time and time again is over-promising returns. Yes, it is quite possible that you could pay your investors 15% interest rates and still make a killing on your deal — but why would you want to do that if they would be perfectly happy with 10% instead? Just because you can afford to pay an investor more doesn't necessarily mean that you should. After all, it is human nature to associate higher returns with higher risk. So next time you think about giving away the farm, take a step back and think again.

Focus on the Wrong Things

We all get excited about the latest deal that comes across our table. Whether it is that under-valued rental property that we found through our mailer efforts or the re-positioning commercial property next to the new freeway exit being built, be mindful that the potential investor that you are speaking with may not be all that interested in the deal just yet. To a lot of investors, the details may not be as interesting as the person behind the deal.

Next time before jumping into the deal itself, be sure to take the time to share your personal success stories. This way, the potential investor can be captivated by your story and get to know and love you before they look at your deals.

What are the worst transgressions you’ve seen when it comes to raising investor money?

Let’s discuss in the comments below!

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 ye...
Read more
    Tim Davids Real Estate Broker from NW Indiana
    Replied over 5 years ago
    So true. Good points. Have documentation of your past deals easily available for investors to view. A simple website with pictures is fine. You have to be willing to snow numbers though. If your not willing to show numbers no way would I lend you money.
    Amanda Han Accountant from Fullerton, CA
    Replied over 5 years ago
    I agree….numbers and experience are extremely important in any deal. Thanks for reading!
    Amanda Han Accountant from Fullerton, CA
    Replied over 5 years ago
    Thanks Lisa. Glad to share my funny experience!
    Replied over 5 years ago
    I could not agree more with the getting married before dating paragraph! This is a great article.
    Amanda Han Accountant from Fullerton, CA
    Replied over 5 years ago
    Thanks Melvin!
    Account Closed Investor from Kirkland, Washington
    Replied over 5 years ago
    Wow, good story and good points! I always think of great things I should have said or done afterward – I’m no good at reacting on the spot. That said, and since I’m new to this, do you have any suggestions on how I can talk about my plans to buy/finance without sounding like I’m asking for money? Or is it best to stick to neutral topics until you know someone better?
    Amanda Han Accountant from Fullerton, CA
    Replied over 5 years ago
    For me…the best way to build relationship is to let people get to know “you”. Of course, as part of that process you could share what you have going on what your success stories in the past. Once someone knows you and likes you, they would be more willing to listen with open ears.
    Jeff Rabinowitz Investor/Landlord from Farmington Hills, Michigan
    Replied over 5 years ago
    My favorite story about inept money raising helped me form a relationship with a man whom I had just met and would soon become a private lender. I was at a REIA meeting and hosted a section on private lending. A gentleman who attended that section approached me afterward. He had sold a business, had funds available and was considering lending on real estate projects. We spoke for a while and he had just asked “How do you know if a potential borrower is serious?”. Before I could answer, a member of the REIA who attended almost all of the meetings here and at several other REIAs for years but, to my knowledge, had never invested in anything came up. I glanced at my conversation partner and said “Watch this”. The so called investor recognized me as we had spoken before, came right up and barged into my conversation. He may have waited until his second sentence before asking me if I would lend him money (he had asked me several times on previous occasions). I asked what project he wanted the funds for? He fumbled around but couldn’t identify one. I asked, “what type of project?” He still couldn’t nail it down. I asked how long he would need the funds. Again, he couldn’t answer. I asked how much he needed. He couldn’t field that question either. At this point I interjected, “Would $100,000 be enough?”. At the time, I was funding fix and flips for $30K -$50K. $100K would have financed projects with nice returns. It was more than enough for a first project. However, the so called investor did not even have the presence to answer this question in the affirmative. It was quite easy for me to make the point to my future colleague, the man I was having the conversation with, that it is usually fairly easy to rule out “investors” that one should not lend to.
    Amanda Han Accountant from Fullerton, CA
    Replied over 5 years ago
    what a great story Jeff.Thanks for sharing!
    Kyla Ross Real Estate Investor from Yorba Linda, California
    Replied over 5 years ago
    Amanda, thanks for the heads up in this article. As a Newbie, I know I would have been prone to making a similar faux pas as you’ve experienced. Do you still speak to various REI groups in SoCal? Investing Tax Advice is great to have in the tool book for us rookies. Have a great one!
    Amanda Han Accountant from Fullerton, CA
    Replied over 5 years ago
    Hi Kyla.Thanks for your comment! Yes we will be speaking at several southern CA RE clubs in 2015 year….quite a few for early in the year in fact. Be sure to check our website for upcoming event info!.
    Paul Timmins Specialist from Rockland, MA
    Replied over 5 years ago
    Amanda As always pearls of wisdom. Great article. Paul
    Replied about 5 years ago
    my thoughts as I read the story and the comments. I have personally experienced and had others tell me similar about trying to work with people they hardly know or have have never even met, like over the internet. It is not easy to sift through these so called funders. Even worse when your in a situation where you do have a really good deal and your (can settle in 2 to 3 weeks) go to person is giving you the run a round. Making matters worse is when you have gone forward with money, docs, estimates etc. because of what THEY said!!!!! So yes it easy to be in a desperate position, most investors starting out do not have money to lose. Personally I agree with this story but too often people forge on without getting everything in a good sequence. I definitely have been there!!!
    Raymond Ebbeler from Largo, Florida
    Replied about 4 years ago
    My first deal was a dry run because it was not a deal you would want under contract because of the nonverbal cues that the RE Broker(s) exhibited. My 30 years as a mental health worker considers overt and covert behavior as clues to “sizing” up a person. So doing a deal (only when face-to-face) is more direct. What about, in cyberspace where one can not hear you scream if you have a bad deal…. AHHHHHHHHHHHHH!!! Moreover, how does one prepare a “sample deal” for a future deal with an investor and after the honeymoon is over — the wining and dining — not whining, LOL hopefully one has already discussed at the “meeting” the goals for doing a deal backed by numbers. So if you are just starting out, can a real estate investor create a “hypothetical” deal since no history can be presented to the investor but with “real numbers” so that when the future arrives and the deal is found and numbers are crunched… that the investor(s) can be reassured and get their 10% – 15% ROI?