Watch: 3 Lessons I Learned From Raising $3 Million

by | BiggerPockets.com

Today I’m going to share with you the lessons that I’ve learned by raising $3 million in equity for a real estate investment property.

Before we start, keep in mind that these three lessons can be used all across the board. Whether you’re doing smaller deals or bigger deals, these lessons apply.

For starters, when you’re putting together a project like this that involves equity, you must get a lawyer involved. The documents to structure these deals can be very involved, and you need to make sure you cover all your bases—including keeping compliant with the SEC. This isn’t a lesson, this is a must!

Related: 3 Invaluable Lessons Learned From 30 Years of Investing

The deal in question was a 198-unit building in North Carolina. I’ve posted some other articles on BiggerPockets with videos discussing the analysis of the deal, so be sure to check those out too. The project required just over $3 million in equity to cover the purchase price, closing costs, and renovations. It was a great deal, but it was much larger than our previous equity raises. I jumped in and after a lot of hard work, webinars, phone calls, lunches, and coffee meetings, I got it done. Here’s a quick summary of what I learned. Be sure to watch the video below to hear the whole story.

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Lesson #1: Not Every Deal Works (For Your Investors)

When you’re raising private money, keep in mind that not every deal is going to work for your investors. This particular deal was a 10-year hold. Not all of my investors were interested in parking their money for that long. I have people who invest with me regularly, but they’re looking for something different. Perhaps a quicker turn around—like six-to-nine months. And that’s OK. The key is to talk to your investors and find out what they’re looking for. Take note of it and offer it up when a deal arises that’s in line with their goals.

Related: The Surprising Lesson a Six-Figure Salary in My 20s Taught Me About Wealth

Lesson #2: Stay in Touch

When someone tells you “No,” they might mean not right now. No, and not right now are two different things and can sometimes be confusing. This is why it’s important to check in with your prospects regularly. The person who said “no” six months ago might be in the position to invest with you now. Remember, your investors are busy. They’re more than likely not going to think to call you if they’re looking to invest in something else. Make sure that you check in and keep in touch regularly.

Lesson #3: ?

This one is a great lesson I learned on how to turn a “no” from one investor into a “yes” from another. You’ll have to watch the video to hear about it. Check it out!

I hope this helps. Good luck out there.

Do you have other tips for raising private money?

Share them below!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area.

One of DeRosa’s mantras is “to make money while making a difference.”

8 Comments

  1. Rob Cook

    Great Lesson Matt.

    A very interesting subject which I personally know little about. I watched this today, because I always enjoy your stuff, but also because I am going to start learning this part of the game soon.

    Good luck on this deal and thanks for sharing!

  2. Angel Gutierrez

    I have another VERY important tip to add to folks out there looking to “raise(borrow)” money … and it doesn’t matter from whom….

    I learned this one from an old guy that taught me a lot about the house business…..

    NEVER deal with “pretender lenders” … it’s a HUGE waste of time and energy! In case you don’t know what a “pretender lender” is…. it’s someone /entity that has to go to someone else for the money for your project. ONLY deal with folks that ACTUALLY HAVE the cash for your project and ONLY deal directly with the decision maker. If you deviate… you’re just spinning your wheels and you will get the impression it’s all about everything YOU did wrong. That make sense?

    Hope this helps…?

    • Matt Faircloth

      Hey Angel,
      GREAT tip! I love that phrase, Pretender Lender! I may need to borrow that one. I agree, there are plenty of talkers out there that will tell you they can close, get the deal done, whatever but when it comes down to it they are not the one writing the check. I always ask my money sources where the money is coming from or at least try and find a general idea. If they tell me it’s their money and it’s in a self directed IRA, it’s a different conversation than it would be if they had strait cash to invest or lend.
      Matt

  3. Justin Denham

    Great video.
    I’m looking to raise about $500,000 for an investment. What documents do I need to look to a laweyer for specifically? What is the typical cost of the attorney’s documentation ( I know it will vary, but a general idea). I’m raising capital not for a specific project, but to have access to capital as flips present themselves.

    • Matt Faircloth

      Hey Justin,
      Let me offer some thoughts. If you are going to raise money for flips you plan to take down in the near future, I would suggest that you raise some potential lenders, versus equity investors. You won’t need the money until you close on your purchase so you can just give them a mortgage and a promissory note, both can easily be created by an attorney for around $1000. I hope that helps!
      Matt

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