How to raise money from strangers

Question

Hello, I’ve got 4 buy and hold duplexes and 1 SFH that is a fix and flip which is done and currently on the market. One of the duplexes is being renovated now and I’m looking for more.

I have a couple of deals I’m looking at but I need to raise more capital. I’ve been reading over the SEC’s website and it says that all investments that are not an accredited investor, friends or family must go through a broker-dealer or a funding portal? If someone could help me understand this process better I’d appreciate it.

John Fortes · Answer

It's essentially stating that you have to have some sort of a relationship with your investors. Basically establish a relationship with new investors prior to ever having the deal under contract. If you have a deal under contract and meet a new investor, don't offer them that deal. Build on that relationship for your next opportunity.

Alina Trigub · Answer

@Bryan Carleton

While both: @John Fortes and @Theo Hicks gave you the correct answers, I'd like to clarify something. Whenever you bring passive investors to the deal, you're selling a security. Keep that in mind as you will have to account for it in your calculations to see if it's still worth moving forward with.

An alternative could be to potentially find other active investors to partner with and work on the properties together.

Theo Hicks · Answer

If you want to raise capital from non-accredited investors, you need a pre-existing relationship with them. If you want to raise capital from strangers, they must be accredited.

Rome Lingenfelter · Answer

@Bryan Carleton, The brain hack is this.  I have to move my perspective from wanting to borrow money to giving people and opportunity to earn a great return backed by real estate.  Get in front of groups of people and educate them about the benefits of investing in RE over other securities.  Become an educator at REIAs & Meetup groups who talks about the benefits of RE investing.  Leave them wanting to ask you the question. "How do I do that?" Give away as much value as you can. 99 people out of a hundred will do nothing with your offered value.  Those are your investors.

Bryan Carleton · Answer

Thanks all!

Brent Shields · Answer

The times I have used other people's money I would start by asking them what they were doing with their money.

When someone says they have it in the bank account earning .2% interest or in a CD at 1.2% then I would ask them if would you like to make 10 times that much?

I would suggest that same approach, once you have used up all opportunities to borrow money at an interest rate,

only then would I start talking to people about an equity split.

Bryan Carleton · Answer

@Alina Trigub

Can you help me tell me what would make it not worth doing? I assume you mean there are extra costs involved?

@Brent Shields Thanks, that is a great alternative. I assume, however, that while I can tie the loan to the property, I probably can’t tie their returns to the performance of the property. The returns probably have to be set in writing prior?

Brent Shields · Answer

I have found it much easier to just borrow money from people, and put a loan to them on the property.

How to raise money from strangers

Most Popular Reply