This is a great time to raise more outside money to fund real estate deals. Many investors are hungry for opportunities. Those with access to deals can be of great service while growing their own ventures and finding even more profit in the market. It is now easier than ever to raise money from a wider range of investors — just make sure you know what it takes and how to create a profitable system before you dive in.
Before attempting any new real estate fundraising campaigns, make sure you’ve considered these six questions and how you’ll handle them:
1. Who do you want to raise capital from?
Who you plan to raise money from will dictate virtually everything else when it comes to creating a successful real estate fundraising campaign. It will determine the projects you seek, the tools you use to reach investors (and follow up with them), how much you offer in returns, the minimum amount of investment you will require, the words you use on your website and presentation materials, the legal structure that is best to use, your branding, your overall and specific strategies, and the time and budget you will allocate.
Understand who the best investors are for your niche and the way you like to work — as well as who you want to work with. The better your picture of exactly who this person is, where they live and work, and how much money they have, the better off you’ll be when it comes to marketing.
Just as importantly, you need to accurately assess how many of these potential investors are out there and how much market share you have potential of realistically securing.
2. How will you instill trust and convenience?
In order to succeed in closing any business transaction today — from buying a pack of gum to a new mobile phone or home investment — you have to instill trust and credibility.
A good website is a smart start and necessary asset. Just make sure it can do everything you want it to. Seek out help and other tools and software solutions to fill in the gaps and really win on these two areas.
3. How will you design an efficient system?
To effectively raise capital, keep investors in the game, and scale that, you’ll need a efficient system for attracting investors, processing incoming capital, achieving excellent follow up, and delivering valuable updates and distributions.
Trying to piece this together as you go is going to be mayhem — if not a complete mess and legal minefield. It is smarter to find a solution that streamlines all of this in advance.
4. How much will it cost to raise money?
Don’t make the mistake of thinking that real estate fundraising is just a one-way street with all the cash coming your way. It can take time and money to raise capital. Asking for too little by not properly calculating legal costs means you won’t raise enough to complete the acquisition, improvements, or leasing needed to perform the returns you promised. That is going to be a messy situation: a very disappointing one for you and everyone you had won over.
Know all of the costs involved in fundraising upfront so that you can cover them until you get funds in your hand and ask for enough money.
5. How much will you offer investors?
How much will you offer investors, and how will they get it? How much is sustainable and easily achievable in terms of returns? How will you create alignment in interests? How will you take your fees — on what and when? How can you structure it to underpromise and overdeliver while remaining competitively attractive on the playing field?
6. How will you manage and balance your time?
Fundraising can be time consuming. How will you manage your time between your regular business of finding, vetting, negotiating, and managing deals versus the fundraising process and managing investors? This can be a full-time job for a team all by itself — unless you find systems and tools to automate it.
What things do you take into account before embarking on a real estate deal?
Share your ideas below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.