Real Estate Investing Basics

How to Screw Up Funding for a Large Real Estate Deal (Learn From My Setback!)

Expertise: Personal Development, Commercial Real Estate, Real Estate News & Commentary, Landlording & Rental Properties
93 Articles Written
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I should have known better.

After all, I had been raising capital for small real estate deals for over a dozen years, and most of them had gone better than planned. But these were one-off deals: home flips, lot flips, small multifamily, etc. And my partners and I were placing a significant portion of own capital in these deals.

But now I was faced with raising several million dollars for a larger multifamily project. And I was scared.

So, I believed the lie. (I should say that I chose to believe the lie.)

“And what was the lie?” you ask.

It was the lie of the silver bullet. Others refer to it as the magic bullet.

It was the belief that when I really needed capital, that one large investor would write me a big check. And as a result, I wouldn't have to face my fears and do the hard work of creating content, developing an investor base, and following all of the SEC guidelines to syndicate this deal.

To make it worse, this investor group was a pool of large money guys out of China. I only knew one of them, an American friend who worked with them to raise capital for a number of other U.S. deals.

I reasoned that, since these deals were much larger than mine, it would be easier to get mine done. After all, they had invested tens of millions of dollars into several other U.S. commercial real estate projects. So, it should be easy for them to invest a mere $3 million in our deal, right?

The Deal Went South

You can see where this story is going. I’ll cut to the chase: When the rubber met the road, there was no large check, no Chinese investor group—at least not for our deal.

This happened twice, in fact. Once they excused it away as Chinese New Year (“The guys are busy, and this holiday lasts for about a month here!”).

It turns out that they were for real. But we found out that we were just too small for them. They were used to writing $10 million to $50 million checks. We weren’t worth the effort to evaluate, especially from across the globe.

So, after about a year of chasing pixie dust and fairies (believing this mega-investor would come through and solve all our capital problems), I had a call with my mentor. A routine call that turned very painful. And embarrassing (one of my partners and an employee were on the call).

Related: The Ultimate Guide to Finding Incredible Mentors

I told my mentor this story on the call, and he said something I never expected. After I explained our dilemma, he reminded me that I had been telling him this story for over a year.

And he reminded me that he had been coaching me to develop a broad investor base for a few years. Then, he said…

“Don’t call me again until you’ve done what I told you!”

This was quite a shock. After all, I had paid for the mentoring program up front a few years before. And it was a lifetime subscription.

Was he serious? How dare he!

I hung up in a good bit of pain. But I had to face the facts: He was right.

Now what was I going to do about it?

What I Learned

Lesson: Some of our greatest gains start with the greatest pain.

I prayed for an answer. I went to a Michael Blank event (which was very helpful). And I pondered a lot.

That’s when I heard the podcast that would change my life.

The Spear Fisherman and the Grizzly Bear

A few days later, I was traveling out of state with my wife. There was a department store that she likes to drop into along the highway. I graciously agreed to sit in the car.

I recalled a friend had told me about this purple app on my iPhone that played podcasts. I opened it for the first time, and I must have typed in something about raising capital.

I randomly clicked on a podcast episode by Richard C. Wilson of the Family Office Club. He was talking about raising capital, and he told a powerful parable—a story that would spark a new trajectory for my career.

Lesson: The best results in life often come when you are eagerly looking for them.

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I could have heard this story a month before or after, and I might have completely missed it. This is a reminder to be very clear on what you are looking for, write it down, and seek it out.

A wise man once said, “Ask and you will receive, seek and you will find, knock and the door will be opened to you.”

Wilson tells the story of a man who lived up North and wanted to live on a diet of fresh-caught salmon. The man decided to become a spear fisherman. To do this successfully, he would have to count on a number of things to go his way:

  • He would have to find a straight tree limb and learn to carve a spear.
  • He would have to learn to throw it accurately.
  • He would need to stand by a dark stream and hope to spot a passing salmon.
  • He would need to aim well and hope the fish didn’t dodge his spear.
  • And he’d have to successfully get the fish to shore.

This is a workable strategy for some, and this guy may be able to survive on salmon. Maybe.

But there is a better way to catch salmon—a lot of salmon.

(This is where the analogy gets a bit silly. I know it. Please don’t shout me down.)

You could be a grizzly bear.

Have you seen those grizzly bears that stand in the waterfall while the salmon swim upstream? It’s an amazing sight to behold. They seemingly unhinge their jaws and the salmon jump right into their mouths.

Now, that’s the way to glut yourself on a salmon buffet!

Grizzly bear catching jumping salmon

What’s the point?

I have four of them, actually.

  1. Don’t believe the lie that if you find the right deal, the money will just come to you. Some of the best deals you’ll find won’t get funded if you don’t have the ears of the right investors.
  2. Don’t count on one large investor to come through for you. Of course, there are some who have a single large funding source, but this is typically family money or private equity that backs a team with decades of experience.
  3. Don’t chase investors. Like the spear fisherman on the hunt, you’ll drive investors away in a heartbeat. If you’ve ever been sold to and resisted buying, you know what I’m talking about. The resistance is far stronger when trying to convince people to invest. And probably tenfold stronger for those who have significant financial resources.
  4. Create an investor base that comes to you. Find people who want to invest with you. Like the grizzly bear, position yourself in a way that investors are drawn to you.

How to Apply These Lessons

To become an investor grizzly bear, you need to be a subject matter expert—and become widely recognized as such.

Are you really knowledgeable about a topic? If not, you need to learn all you can through both education and experience.

You need to face it: Education and experience are prerequisites for you to raise money in the first place. You shouldn’t be taking investors’ money if you haven’t jumped this hurdle.

And if you’re new, I recommend you team up with someone who has the education and experience. That is a great path to success in real estate investing.

If you have the knowledge, now you need to come up with a platform to get the word out. How could you do that?

I have a handful of ideas for your consideration:

  1. Write a book. (This isn’t simple, but it may be easier than you think.)
  2. Create additional content like ebooks, special reports, and webinars.
  3. Host a podcast.
  4. Be a guest on podcasts.
  5. Start a blog. Or blog for BiggerPockets.
  6. Make yourself known on the BiggerPockets Forums and Member Blogs. There are thousands of opportunities to comment on articles and forums. And you can get the ball rolling with your own forum questions.

I have done all six of these, and these have been game-changers for me. I already had almost two decades of real estate investing experience when I started, so it was natural for me to go down this road. It’s been fun, and it often doesn’t even seem like work to me.

Related: Winning the Content Game: Why Posting Free Content Is Better Than Monetizing

My firm raises capital for carefully vetted self-storage deals, mobile home parks, and multifamily. I don’t know where we would be if we hadn’t gone down this path.

If you’re unsure where to start, check out what others have done well. Marketers like Gary Vaynerchuk and others have paved the way.

And check out the book Platform by Michael Hyatt. It would take years to implement the ideas in this book.

Last but absolutely not least, check out my friend Matt Faircloth’s book called Raising Private Capital published by BiggerPockets.

In my next post, I’m going to discuss five common myths in raising capital. Please follow me to get a notification when that post goes live.

Happy capital-raising!

How have you (or some of your favorite marketers) created powerful platforms to get the word out to investors? 

I’d love to hear from you in a comment below!

After graduating with an engineering degree and then an MBA from Ohio State, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a...
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    Kevin McGuire Rental Property Investor from Seattle, WA
    Replied 9 months ago
    Paul, always appreciate your thoughtful and genuine posts. This is a great lesson, you should go on “How to Lose Money”! Oh wait ... What I really like about this post is it’s focus on the network, not the deal. The network is the long term view that requires a patient, methodical approach which you exemplify with your myriad of community investment. Love the win-win.
    Paul Moore Investor from Lynchburg, VA
    Replied 9 months ago
    Kevin: And I always appreciate your thoughtful comments! Thanks so much. Great lessons for sure.
    Alina Trigub Rental Property Investor from Glen Rock, NJ
    Replied 9 months ago
    Paul, Very informative article - thank you for sharing your approach. While I cannot imagine you in a role of "grizzly bear" (you're more of a friendly whale), knowing your incredibly deep knowledge and extensive experience level, I can see why investors are attracted to be a part of your network. Thanks!
    Paul Moore Investor from Lynchburg, VA
    Replied 9 months ago
    Thanks Alina! I hadn't thought of the negative connotation, but I think the point is the same. Appreciate you!
    Sri Ram Rental Property Investor from West Palm Beach, FL
    Replied 9 months ago
    Informative article Paul with your experience and knowledge you bring in lots of good points you have to keep in mind to keep growing.
    Paul Moore Investor from Lynchburg, VA
    Replied 9 months ago
    Sri: Thanks so much. Very kind of you!
    Ashley Wilson Rental Property Investor from Radnor, PA
    Replied 9 months ago
    Great article as always!!! Thank you for always being so transparent and sharing your wisdom!
    Paul Moore Investor from Lynchburg, VA
    Replied 9 months ago
    Thank you Ashley!
    Joseph E. Investor from New City , New York
    Replied 9 months ago
    Great words from the methodical guy, pushing forward slowly but surely.
    Paul Moore Investor from Lynchburg, VA
    Replied 9 months ago
    Joseph, I appreciate your comment. I'm trying!
    Michael Kalisch Investor from Airmont, NY
    Replied 8 months ago
    My I add another lesson? Always find out what is your investors sweet spot. Same goes for lenders, real estate agents, attorney's. Deal with the ones that are interested in your business.
    Paul Moore Investor from Lynchburg, VA
    Replied 8 months ago
    Michael. This is a great point! Thanks for adding this to the conversation.
    Jared Ballin Investor from Cumberland, RI
    Replied 8 months ago
    Hi Paul, thanks for posting. Similar to your story, an opportunity to syndicate has presented itself without first having developed an investor pool. A broker my brother/partner and I are working with on the purchase of a 3-family in Boston just advised us of an investor's attractive portfolio being offered for sale. The portfolio includes about 13 multi's in a single, highly desirable area in Boston. Acquiring the entire portfolio would come with a significant discount as compared to buying each multi for about $1.1 MIL. Should we even bother trying to syndicate without an established investor pool? Perhaps there is some other way to leverage this opportunity? I would appreciate any thoughts you may have on this, even if it's "go away until you've developed a broad investor base."
    Paul Moore Investor from Lynchburg, VA
    Replied 8 months ago
    Jared, Thanks for writing. It is unusual to get a great off-market deal these days, and I would hate to see you miss it. It would be very hard to syndicate without the investor pool. I would see if you can find someone to partner with. Perhaps a local person with cash or someone you know elsewhere who has resources and would partner with you. It may not work timing-wise, but if you have a great track record, you may also want to see if you can raise capital through a crowdfunding site. There are many barriers, but it may be worth a call to Crowdstreet or Realty Mogul to check their criteria. Of course, you could also ask about owner financing, but that is nearly unthinkable in this situation. I wish you the very best!
    Derrick Walston Rental Property Investor from Virginia Beach, VA
    Replied 16 days ago
    This was a great article. I am working on my first multi family 8 unit deal. I have a commercial consultant who has access to funding solutions for acquisition and renovations. Although I am nervous, my hope is that I can make the numbers make great sense.
    Paul Moore Investor from Lynchburg, VA
    Replied 15 days ago
    Derrick, Thank you! I wish you the best as you work on that deal (in my own state). Let me know how it turns out!
    Steve Morris Real Estate Broker from Portland, OR
    Replied 15 days ago
    Not quite clear, you say don't chase investors (which I disagree with), but then you list a bunch of stuff to get investors. I'd say chase QUALIFIED AND SERIOUS investors.
    Paul Moore Investor from Lynchburg, VA
    Replied 15 days ago
    Steve, Thanks for your comment. I mean to convey that I don't want to chase (hotly pursue) investors and try to talk them into investing. I would rather do things that attract qualified/serious investors to ask me if they can invest.