How have you raised money/attracted investors in the past?

Question

Let's assume that you have a track record of success in whatever aspect of real estate that you are doing. You have tax returns and successful projects that you can show potential investors if they ask.

Let's also assume that you have exhausted your supply of "friends, family, and fools," as well as your own personal cash.

Have you always just gone to banks? What about private individuals? If so, did you file a PPM with the SEC and do it that way? Did you use crowdfunding sites?

Did you offer just interest in return, or partial equity? Did you let someone come on as a partner in the project?

Do you have any specific stories you can tell?

Theo Hicks · Answer

Create the biggest circle of influence as you can. Create thought leadership platforms, like podcasts, blogs, YouTube channels, and meetup groups.

Talk to as many as people as possible about your real estate investing business. Avoid straight up asking people to invest in your deals so that you're adhering to securities law.

As for what to offer, it varies. But generally, it is a preferred return and a profit split.

John Corey · Answer

Syed,

I take it you think crowdfunding disconnects investors from you. That you can not use crowdfunding to build relationships. Do I have that correct?

Syed H. · Answer

No don’t have a need or desire to.

I like building real long term relationships with investors. It’s a more reliable access to funds than crowd funding or other funds IMO.

Patrick Philip · Answer

Have you ever tried crowdfunding sites?

Syed H. · Answer

We’ve mainly raised from HNW individuals within our network. All accredited investors, investing large sums, usually for interest. Sometimes structure it as corporate debt. This is for flips. We usually target one investor to fund 1 whole flip or at least half. Easier to answer to 1 or 2 investors vs 10.

For Buy & Holds, we haven't taken any outside money because most people want an exit within 3-5 and we aren’t willing to do that yet. Starting now to take 1 or 2 very large investors who we can essentially JV with. Pref + Equity.

I would focus on getting home run deals, getting money shouldn’t be an issue. Obviously, this depends on the strength of your network. If you don’t have this, first thing is to go network. Mastermind groups, REI groups; etc .

Jay Hinrichs · Answer

good point John.. multi benie loans for instance in Oregon are deemed a security.. in CA the threshold is 10 per loan but you need a RE broker to run your paper work..  etc etc.. every state has specific deals one would simply know and under stand the Howry test.. to be safe.

Taylor L. · Answer

@Patrick Philip my investments have all been value add with 3-5+ year time horizons. Buying existing assets.

If you're doing development, that's a whole different can of bees. You might need equity investors, construction loans, bridge debt, and more. I'm not an expert on development, but they're out there!

John Corey · Answer

Just to point out a subtle issue.

If you are only paying interest, you might think it is a loan and therefore the securities regulations do not apply. Better to speak with an attorney and get them to send you something (email, etc) with their opinion than to assume. There are situations where a loan could be a security. Definitely an issue if you bring in multiple investors into 1 loan.This is an area of the law where it is better to be safe than to be sorry. Even if you have not had an issue in the past, that does not mean the SEC is giving you a pass. They can go back years when they decide to investigate.

Patrick Philip · Answer

Were all of your projects "buy and holds?"

Would it work if you were building something to sell? Like building houses or a condo complex?

Clark Kirkpatrick · Answer

Taylor's got it right - you need to talk with as many people as you can who might be interested, but without soliciting anyone. Basically, act as a knowledgable and personable guy who makes people feel at ease and like maybe you will actually return their money to them under the terms of your contract. There's plenty of money out there, and lots of people who would be happy to invest passively in real estate with someone knowledgable like yourself.

And find a good RE attorney who can guide you with the SEC stuff.

@Taylor L.  if you have a minute, could you tell me what characteristics define a deal where a preferred return does or doesn't make sense? I'm trying to work through this myself right now.

Thanks in advance!!