How to lock in private investors without a deal?

Question

I am in the process of raising private money to BRRRR a multi-family property in Cumberland County, Maine. I aim to create a simple pitch that could be used on potential investors. Prices are fairly expensive in this area and I don't believe I have any one investor willing to fund an entire deal. The market is hot so I would like to have the money accessible quickly enabling fast acquisitions. I'd like to ask investors for an exact amount of money on an exact date but I don't have a deal yet. How do I lock in investors without having a deal? Does anyone have an example of what this may look like? Because I am having a hard time wrapping my head around how to pitch an investment with an unknown price tag and timeline.

Questions moving forward:

Once I get an investor interested how do I lock them in? With a promissory note?

In a situation with multiple investors should everyone enter into a 1065 partnership?

Thank you very much BP, I appreciate all your advice!

Tom

Questions moving forward:

Once I get an investor interested how do I lock them in? With a promissory note?

In a situation with multiple investors should everyone enter into a 1065 partnership?

Thank you very much BP, I appreciate all your advice!

Tom

Nathan Gesner · Answer

Your question is more than I would want to answer in a post. As an investor, I would want to know that you have experience and success in this realm before I put any money with you. Do you have experience? Successful experience? If so, you should be able to document it and demonstrate your success. Build a portfolio that explains who you are and what you are trying to achieve. Provide proof by documenting past success. Then show what you project to do with their funds and how they can succeed along with you.

There are about 117 things in that little paragraph that a professional would do before asking for money. Good luck!

Whitney Hutten · Answer

@Tom Foden Read Mat Faircloth's book Raising Private Capital.  That will help you develop a business plan to rally investors around :)

Matthew Mazur · Answer

Interested in how this progresses. I agree with @Nathan G. - my general advice is to not think about the task in front of you as 'locking in private money,' instead, think of your task as 'finding deals that will be 1) demonstrably safe investments with 2) a high probability of a desirable return.'

Start tracking the market, find deals you would BRRRR by defining your acquisition criteria. Do as much of the process as you can. How is it really going to work? Step-by-step - who is your lender, how much is the rehab, what is your lease up time and carry cost... Your business plan should be detailed enough that the only elements missing are a property that fits your acquisition criteria and $X to make it happen.

Tom S. · Answer

@Tom Foden  If you're keeping the property as a rental, which I believe you are, try reaching out to local banks in your area which probably would be quite a bit cheaper than private money.  I've used Lake Sunapee Bank (now Bar Harbor, which lends in Maine) used to offer a purchase + rehab financing product that would convert into a normal mortgage after rehab was complete.  So no need to refi afterwards and no second set of closing costs.

Speak to the commercial lending department of your local branch to if they still have something like that.  I did the pre-approval first, and once I found a deal, they were able to move quite quickly to close.

Good luck!

Eric Johnson · Answer

You create a sample deal of what you think a real deal that will produce a good return will look like. Your pitch should be well thought out and include all of the high level & granular information that would be crucial to an investors decision making. You need to be an expert and they will take you seriously and commit their capital to a realistic acquisition opportunity.

Tom Foden · Answer

@Whitney Hutten Thank you so much for the lead! I am a few chapters into Mat Faircloth's book and it is exactly what I am looking for.

@Tom S. Great idea on going straight to the bank. I'll be sure to reach out to them tomorrow. Thanks

@Nathan G. Thank you very much for the direction. After digging into Mat Faircloth's book I have a better understanding of the advice you gave me and how I have a long way to go before I approach anyone for an investment.

Thanks everyone for your time!

How to lock in private investors without a deal?

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