What’s the secret to attracting all the funds you need to invest in real estate from private lenders?
2015 – Year of Private Money
While super-sized hedge funds are doing their best to take over and institutionalize the real estate financing industry, they don’t have it all yet. They can’t provide everything that is needed on both sides. Many individuals with capital don’t have the stomach for the volatility of REITs and indirect investment. Investors on the front lines of fixing and flipping houses, and rehabbing rentals don’t all fit the mold either.
There are trillions of dollars in U.S. retirement accounts, in addition to the rising home equity Americans have realized over the past few years. Yet, individual investors are still having a rough time in finding safe investments with great yields. This is specifically challenging for those seeking cash flow. Though the same applies to growth investors with a low tolerance for risk. Top level financial pundits and media outlets have done an incredible job of paving the way for real estate to fund-raise. Knowledgeable individuals are now reasonably well aware of the opportunity, and its advantages. Many are out pounding the streets and visiting local real estate investment clubs to find people to give their money to.
As the front line investor, there are huge advantages to working with private lenders. It’s not just about getting money in general. There are plenty of channels for fundraising and borrowing, but private money can make the process faster, with better terms, and more flexibility. So how can real estate investors not only connect with more private lenders, but win them as partners in investing?
Rather than just focusing on getting, investors should focus on giving. Seek more individuals to serve and help, as opposed to just taking from them. This starts with understanding your value. If you’ve invested in your real estate education, and are serious about doing good business, you have a lot to give. You can help individuals unlock pent up capital they have in other real estate or 401ks, serve better returns (without more risk), and solve their worries with great investment opportunities.
Become a magnet for existing private money lenders, and new ones. If you appear desperate and out there begging for money, you are going to scare them away. If you just present yourself as having and being something that others want, they’ll be drawn to you. Think about those you are drawn to learn from, to be like, and to invest with. Replicate that. Once you get into a good groove, you may be amazed at just how effortless fundraising can be, and at how much your limiting beliefs limited you in the past.
Not all private lender prospects will jump in headfirst, and they shouldn’t. They are putting their nest egg on the line. Focus on building and nurturing relationships. It’s a little like trying to get a date, and then getting to the point where you combine your finances with a significant other. The more time that goes by that you are in regular contact, the easier you will naturally forge a business relationship.
Objections will arise unless they are preempted. Each objection can mean a pause in the process, and the opportunity for prospective financiers to go somewhere else with their capital. Streamline the process by having the answers and wherever possible answering them in advance. This can be done via online FAQs, in printed or email handouts and presentations, and in early meet-ups. Many of these questions will revolve around taxes, security, structure, and what happens in the worst case scenario.
Deliver on your promises and plans. The best way to scale your fundraising and deal volume is to do an awesome job. Deliver, and investors will scale their investments with you. They’ll also tell others, and refer them to you.
This is going to be an incredible year for raising private capital, and taking distressed real estate to successful deals. The above will help investors raise even more cash from the crowds to capitalize on opportunities, as will being authentic and transparent, providing proof, and choosing backers well. Don’t limit yourself. Think big. Go big, and keep building on success after success.