Hard Time Raising Capital

23 Replies

My partner and I have everything in place. Accountant, Lawyer, Business Plan, Real Estate Agent, Project Manager, General Contractor, Joint Venture Agreement, Hard Money Lender but what we cant seem to get is investors. What should we be doing to be pro active to get in front of Capital. Where do we find interested investors? What questions should we be asking?

Are there any local REIA/investment club meetings in your area? That is a great place to network and find investors that are looking to put their money to work. I personally had success with using family and friends when getting started. Have you asked your hard money lender to connect you with local investors that they lend to? I would think that they are a great resource. Also ask fellow BP members in your area who they do business with. Most important part of raising capital is your integrity and reputation. You need to show others that you are responsible and trustworthy before they hand over large sums of money. Also, offer to secure their money to the real estate involved in the deal. Hope this helps!

Brian Ortins, Ortins Group | [email protected] | 978‑979‑5007 | http://www.ortinsgroup.com

Originally posted by @Brian Ortins :
Are there any local REIA/investment club meetings in your area? That is a great place to network and find investors that are looking to put their money to work. I personally had success with using family and friends when getting started. Have you asked your hard money lender to connect you with local investors that they lend to? I would think that they are a great resource. Also ask fellow BP members in your area who they do business with. Most important part of raising capital is your integrity and reputation. You need to show others that you are responsible and trustworthy before they hand over large sums of money. Also, offer to secure their money to the real estate involved in the deal. Hope this helps!

Thank you Sir,

Great information and incite. Will use it wisely.

Welcome aboard.  Wendell DeGuzman listed some noteworthy ways to develop streams of income.  They are worthy of attention. Good luck.

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What are you offering investors?

Joe Gore

Mr. Gore we are presenting a 10% return for the investor for use of funds with upside participation above a certain ROI on property.

I haven't invested capital in a deal like this yet - but probably will within the next 3-4 years.

With that said, with no track record, 10% seems a bit low.  It would depend on how the upside is structured, but it feels like the lack of history is siginificant as it introduces more risk.

What is a common rate for established investors in your area?  What about for investors without the track record?

Also - i'm including Joe on this so he sees the reply above.

@Joe Gore 

If you are going to learn on a capital investors dime expect to have to pay out above market rates.

These type of investors are looking at alternative investments for allocation of their capital.

If you pay at 10% but they can get 9% with a proven track record performer then the 1% doesn't justify the unknown risk. If they can get a much higher return then the 9% and the investment is smaller then they might take a gamble with the money but it doesn't affect their overall liquidity as a small percentage of their worth.

If you want premium lending rates you might have to approach friends and family.

How much money are you trying to get per investor??

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

How are you ever supposed to get experience if no one is willing to give the first timer a chance?

I don't think an investor will go for the 10% I think you might have better luck at 15% or 18% with collateral.


Joe Gore

@Patrick Jacques,

Investors will give first timers a chance as long as you have skin in the deal and an exit plan on repaying.


Joe Gore

We do have exit strategy and we do have 200k in IRA. Our criteria does allow for a 20% return but we do not want to over promise on a first deal with investor. That is why we offer upside return on ROI.

@Michael Timothy,

Most investors like to hear that you will personal guarantee their money.

Joe Gore

If you have 200K in a Roth why not get started with that?

Kenneth,

It is not in a Roth and we are trying to roll it to a way we can use the funds. Hopefully soon. Thank you Kenneth.

Hi Michael, I'm not exactly a great fundraiser, but I do raise funds for my fix and flips and work with a small group of investor's money. From the experience I've gained from a tiny amount of fund raising, this is what I've come to learn

1. I market my investment like a product. Don't market the house itself, but the investment vehicle. For example, I sell my investors on the "Invest in the Californian experience," not house 123 darling street, in the city of xyz.

2. Like any product, you need to consider who your target market is. Mine are high net worth individuals from Asia who want moderate returns from a boutique investment company, and not some faceless fund that controls billions. Consider where and what your market might be. 

3. Yield or % return is only one element in attracting investors. What other elements make it attractive to investor? In relation to point 2, unlike some faceless giant fund, my investors can come touch, feel, even stay in the finished product to see where their money is going. (None has ever taken up the offer, they've all preferred to just stay in a hotel). It gives them a kick and some bragging rights at home "see this house in california, that's one I own...until it's sold"

4. I would define your product. If it's very broad, e.g all kinds of properties in socal, my investors eyes will glaze over. So I narrowly define mine as single family residences in beach towns in orange county. By doing so, they know exactly where their money is going.

5. Using point 4, it becomes a demonstration not only of their collateral, but also the QUALITY of their collateral. Many of my clients who are finance saavy actually find the quality of collateral far more important than the yield. 

6. And it's because of the quality of the collateral as seen in point 5, which allows me to model their worst case situation. for example, if the market crashes tomorrow and we can't get out without catastrophic losses (unlikely since the property market isn't the stock market), what the worst case? they get stuck with a sfr in sunny socal walking distance to the beach for a few years. for 99% of my investors, that is a fairly acceptable worse case scenario, it gives them confidence in investing. Now if i wanted to do the same in Detroit, I would likely to have find a different set of investors. 

7. See if there are other benefits for your investors. tax breaks or write offs? Mine use their investments as a hedge against currency fluctuation as well.

8. Is there any plans or systems in place you have to hedge them against losses? for my company, I hold real estate abroad to hedge against a catastrophic failure of the USD so my investors know their money is protected.       

Sorry to ramble on. In short, I'd encourage you to think of your fund raising efforts like a product and the benefits it will bring to your investor. Then when you have defined the product, you'll know where to find the consumer/investor.    

CK Hwang, Redwood Investments LLC | [email protected] | 9496329632 | http://www.redwoodinvestmentsllc.com

Mr. Hwang,

Much appreciated taking the time out and providing a valuable resource. Very grateful Sir that you would be so kind to share your knowledge.

From point #8 we have not put into place a hedge such as international Real Estate. Mostly analyze the property through a criteria that is able to produce returns from 3 or 4 viable avenues if markets collapse or level off. Investor Return is always number one.

You have given much to think about and to reevaluate.

Thank you,

Hi Michael- I think I'm missing something.... You have everything in place including hard money? What do you need investors for?

Medium missionlogosmallSalvatore Lentini, Mission Real Estate LLC | http://www.tenyearmission.com

Sal, We cant access the IRA money yet as a deposit for the Hard money. What we are trying to do once we have access is in the first month (weeks 1-4) purchase and have begun Rehab projects on our first property. In the second month our first property will become listed and will then purchase one home in that 2nd month, (weeks 5-8). We need to have the funds to cover the inventory and renovation expenses.

@Michael Timothy  investors make their investment decisions using the same basic fundamentals that all of us base our decisions on:  fear and greed.  They invest with a sponsor they trust because they fear losing money.  If they don't trust you, they will only invest with you if the returns are really high and the security is ample.  That's the greed side in control.  

The reason you aren't finding investors is that you have been unable to tip the fear/greed scale in your favor.  You can do this one of two ways: 1. Earn their trust or 2. Offer them a higher rate of return, a personal guarantee, lots of security, and equity behind them.  

Option 2 is what your hard money lenders expect. It's hard to offer this to your equity investors because you have hard money in first position and what you are trying to do now is raise money for the rest of the capital stack.  So that leaves you with option 1. 

You earn their trust in two ways: 1. A relationship (friends and family etc) or 2. A track record. This is the classic "chicken or the egg" scenario but there are ways to work around it. You could use friends and family money to fund your first few deals before moving to outside investors (this is the way most startup companies are funded, by the way). Or, you could use unsecured lines of credit, home equity lines, credit cards, or get that IRA money moved over to a self-directed IRA and use that (if you can use it for your deal without it being a prohibited transaction).

Once you have a proven track record, it will be easier to earn investor's trust and reduce their fear.  You just have to grow slowly, there are no shortcuts.

Medium praxis capital logo cmyk stacked 900pxBrian Burke, Praxis Capital, Inc. | [email protected] | http://www.PraxCap.com | Podcast Guest on Show #152

Thank you Brian for the incite. No shortcuts for sure.