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7 Tips to Raise Private Money for Your Real Estate Investments
Having your investors lined up and committed before you even put a property under contract is critical when bidding on real estate deals. Without upfront commitments from investors, you may hesitate to even put in bids deals, and you may also not have money in time to close.
Here, we will discuss the 7 steps to raising private equity money for your next real estate deal.
- Use your own cash first.
No one is going to be thrilled to contribute private money to your real estate investments unless you’re doing the same. You need to show, rather than tell how serious you are about your investments. Also, few things in the world are as gratifying as accomplishing your goals on your own… especially when you prove all your doubters wrong in the process.
Don’t have enough cash to start? You need to make a commitment to yourself that investing in real estate is one of your top priorities. This means living a frugal lifestyle, for the time being, and saving as much money as you can. This may not be news – you’ve probably heard the same tip from every personal finance guru on the planet. However, this isn’t just personal finance advice – this is some of the best business finance advice as well.
Once you’ve saved up enough and begin investing your own money, you’ll most likely make more well-informed and calculated decisions on how to invest. You’ll be forced to think harder about every dollar you spend. This is a great strategy for early-stage investments, as you should begin an investing portfolio with somewhat conservative investments before you take on higher levels of risk.
- Become Good at Details
Like many areas of business, accurate documentation is paramount in real estate. You need to record every detail of your purchase, rehab, and sale. This can be accomplished with a simple spreadsheet and photo/video documentation. One of the greatest perks of this documentation is creating a baseline for reference in future projects. This will allow you to constantly improve your business practices. You can also pass this documentation along to potential lenders to prove the quality of your work and your eye for details.
- Promise Realistic Returns
One of the biggest mistakes most real estate investors make is promising huge returns to persuade potential lenders. If you are over-confident in your sales pitch, your presentation might automatically come across as a “high risk” or even a scam. You may be tempted to tell investors that you can deliver rates that beat the current market averages; however, to over-promise and under-deliver is a classic recipe for failure. You can always start off with a conservative estimate on returns and establish a working relationship with a potential lender before moving on to higher risk opportunities. For example, if you promise an ROI of 8% and they actually make 14% on the opportunity, you can almost guarantee they will be coming back for more business opportunities.
- Prove Your Potential
While you don’t want to oversell yourself, you also want to be convincing to potential investors. Experienced investors with larger cash reserves typically look for investments with a potential for higher returns. You will have to individually “read” each potential lender to get a feel for their risk tolerance. Keep in mind – this might take a while to accomplish. Building trust with your lending partners over time will ensure that you have a long-lasting, stress-free partnership.
The first place to look for potential investors is among the relationships that you’ve already built. Many people invest based on who they believe in rather than which opportunities they believe in. You’d be surprised at who is willing to help out if you simply ask.
It’s always a good idea to attend local or online networking events such as real estate club meetings. There is a plethora of real estate organizations that offer free meetings, training, and information sessions where you can both learn and network simultaneously. Just make sure it’s clear to everyone you meet (and those you already know) that you have a business investing in real estate. Additionally, you can ask your connections to place you in contact with members of their personal network who are willing to help out.
- Be an Educator
Look for opportunities to educate people about private lending. Doing so will position you as a leader in your field and build trust with potential lenders. Educating others might also help you find new private lenders. Many lenders might not have experience with real estate investing, and hearing about your educational info and opportunities might convince them it’s an area that’s right for them. Just make sure that your potential lenders understand the benefits of private lending compared with traditional forms of investing (index funds, securities, etc.) to pique their interest.
- Always put others first
There’s no easy formula to follow to raise money. However, one of the best strategies to take is to focus on long-term relationships over short-term gains. Just because someone doesn’t lend you money right away doesn’t mean they won’t be able to help you out later on. Always listen to those in your network, be attentive, ask questions, and see if there’s anything you can do to strengthen your connections. What are their goals? What are their pain points? Which types of service could you provide to help them with? When taking this approach, other people will naturally grow to like you and be willing to help you out when you’re in need.