How to Raise Private Capital - Experience with Chinese Investors
One of the most common questions newbie real estate investors ask is:
"I am a newbie and I want to raise private money to buy deals. How can I do it?"
I will answer it using my personal experience.
I started investing in 1999. I lost everything and had to re-start my investing career. But from losing everything I have now acquired over 1,000 apartment units.
Here's my story for those who don't know me: (this is just Part 1 of a 3 part series)
https://www.biggerpockets.com/forums/55/topics/690349-from-bankruptcy-to-1-000-units-part-1-thru-the-dark-tunnel
Fast forward to today, without any advertising, I was able to get investors...even investors from China. Here's a picture:
So How Did I Do It?
1. Don't raise private money for your first deal. Buy a property on your own first.
Why? Because, as a newbie investor, you're a high risk. You want to learn investing and make mistakes on YOUR dime not on someone else's. Good thing I did it that way though because I made mistakes, after mistakes and lost one property after another. Had I raise capital too early, I would have made my investors suffer for my mistakes.
How do you buy a property if you don't have any money? Three choices (you can do all three):
a. Learn owner financing
b. Learn how to wholesale first
c. Save enough money (I had to work 3 jobs just to save enough money for a downpayment. How badly do you want to do this?)
2. Once you've done a deal, do another deal and another.
Start small. Make a little bit of money. Roll it over to the next deal. Make a little bit more. And so on. What you want to do is establish a track record. Private capital is attracted to experience and track record.
3. Share your successes with everyone you know and everyone you meet.
Network like crazy. Talk excitedly about real estate investing. You can share your successes without sounding arrogant by sharing what you're learning on your deals, problems you've encountered and how you've solved them. Provide value to people and be genuinely interested in talking and listening to people - newbie or experienced investors. Treat everyone with respect and kindness.
Here's my experience - sometimes people whom you think have no money - have money and vice versa. Sometimes, teachers, and secretaries are able to save more money than doctors and lawyers. SO treat everyone like you want to be treated. When you do, you will be referred to others.
That's how I met my investors in China. I was referred to them. I did not do any paid marketing or advertising to find them.
4. Once you secure private capital treat it higher than your own money. Don't be GREEDY and ensure you make money for your investors FIRST.
I give my investors security for their investment. I think of the downsides and mitigate them. I give my investors profit first before I take any profit. On top of that, my investments are structured in such a way that the probability of losing is very small. I buy below market in areas that are emerging or about to appreciate and I add value to the properties that I buy. This 3-part formula ensures the investment becomes successful - so much so that I've never lost any money for any of my investors ever (even through 2008!).
5. With Chinese Investors - and really, this is true for any investor...it's all about RELATIONSHIPS
When I went to China last week, my initial investor referred me to another investor with a networth 20 times his own. In the picture above the cumulative net worth of the people in the room is about $500 MILLION. But don't let that figure intimidate you. At the end of the day, people do business with people they like and trust. Having a meal together and even playing sports together - that's what people who like and trust do.
When problems arise - and expectations may not be met - having a personal relationship make things easier.
Relationships are also fostered and nurtured through timely and constant communication. Be responsive to your investors - specially when problems arise.
One Challenge with Foreign Investors
One challenge with foreign investors specially with the "trade war" between US and China, is that transferring money (from China to US) is more limited than before.
Even then, I was able to buy a 42-unit apartment building In Cincinnati and a hotel in Columbus, primarily with the help of my Chinese investors.
So there you have it. How you can raise millions in private capital, even from foreign investors. It's not easy and it takes time but you can do it too. In summary, the formula is:
1. Be a nice person by treating everyone with respect
2. Network, network, network
3. Be a conservative investor and
4. Be ruthless in making money for your investors.
Anyone who has raised money from private investors want to add or share their experience?