If you talk to a seasoned investor, raising private money is one of the most important things they can do. To be honest, it isn’t all that difficult. Once you’ve established a track record, it becomes easy to raise money. As a matter a fact, you’ll be in situations where you’ll have to turn away money because you don’t have a use for it. What a great spot to be in, right? But what you don’t realize is how long it takes to get to that point. Hopefully after reading this, you’ll be one step closer to being able to access all of that private money.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
4 Simple Steps for Newbie Investors to Start Raising Private Money
Create a Track Record
I don’t think this can be said enough. You want someone to lend you money on a deal and you have never even done a real estate transaction? Get real.
I have to say, I have avoided some of my local investors because I’m tired of seeing people introduce themselves saying they have no experience and are looking for private money. Really, what you should be saying is, “I have no experience, and I am willing to do anything to partner up with someone who does.” There really are no shortcuts to this. Can you convince someone to give you money without a track record? Sure you can, but it will always be an uphill battle. It will be quicker and easier to find someone to partner up with and learn from.
Let me speak to the partnering up thing, too. I’ve sat down with a lot of new investors and it pisses me off when someone says they want me to teach them what I do and how I do it. From what I can tell, all they offer to me is their company. You riding around with me all day soaking up all the information that I can give you does nothing for me. You are a distraction more than a help. Offer something of value in return. Guys, don’t become full time investors without having put in many hours to get there. Why should they give you the whole process gift wrapped? Just because you’ve asked for it?
End of rant.
Remember: You’re the Prize
I went to a syndication seminar a while back. There was some good info there, but one of the biggest takeaways that I got was there is more money than deals out there. And that is always the case. People are always looking for good deals.
Once you’ve established competency in putting a deal together, stop begging for money. You have something that people want. It is a deal that offers a great return in exchange for lending you money. And above all, it is collateralized. A very clean, asset-backed loan. I would like to share a little tip that I have found: “People who are most interested in this offer are the people who are looking for capital preservation instead of capital growth.”
People who are in their 30s and 40s still think they are going to buy into the next Facebook. When they get to their 50s, they realize that they probably won’t find it and settle into a more conservative portfolio. Asset-backed lending fits that bill.
The more you act professional, the more people will trust you know what you are doing. Make sure you have the proper documentation. Pay a lawyer to draft it up. Understand what your documents say. Nothing blows a deal faster than when you get a call from your investor asking you a question about the paperwork and you don’t even know what he is talking about.
Create a checklist to make sure that you are on top of all the paperwork. One thing that we got incredible feedback from our lenders was a simple monthly statement. It shows the loan amount, the collateral, any payouts and a running total of how much money they’ve made this year. This leads me to my next point.
Don’t be afraid to start small. If you are looking for $50,000, it might be better to find five people who will contribute $10,000 each. (Talk to your lawyer about how to write up the paperwork correctly to secure everyone’s interest.) Also make sure that you send MONTHLY interest checks along with that statement.
I can’t tell you how often those same investors who may have been on the fence writing the first check call me up after a few months and say that they want to put in more money. Receiving that monthly check along with the statement showing how much money they made gets them thinking about all the money sitting in the bank that they aren’t using.
Raising private money isn’t that difficult if you are ready to do some work and use your personal finance, too. You need to give to get. That’s how it works.
What are your experiences with raising private money?
Please share in the comments below!