Raising Private Capital – How to Raise More Money More Often
There are numerous ways to do a “no money down” real estate deal. They all revolve around the same principle which is to utilize someone else’s capital, whether that source is the bank, the end buyer, or a private investor. “No money down” can be a misleading term. Instead, it really should be called “using other people’s money real estate investing”. Having said that, one of the most common ways to get a deal done is to use an end buyer’s capital. Unfortunately, most investors find it tough to raise private capital.
So why do many investors struggle with raising capital?
I’ve been to dozens of real estate investment clubs. Generally, the two most common things you’ll see investors ask for is a. investor contracts and b. to take a look at their deal. In the case of b, ask them about their deal, they give you some sort of vague description. “It’s a great deal on the East side, only XX dollars.” The problem is that it doesn’t convey the necessary information and it’s vague and untargeted. Good marketing plans are never vague and untargeted.
Compare that to a real estate professional
There are a lot of good and bad real estate agents alike but one of the reasons they become a real estate agent and join a brokerage is because of the marketing system that it provides. When you walk into a home that is listed with an agent, they hand you an MLS listing that summarizes the home, business cards, and often additional pamphlets or brochures. They are treating their real estate business like a business and so should you.
How to raise private capital
Every investor that I know who is successful in raising large amounts of capital, whether it be private capital funds, large numbers of lease-option tenants, short sale and wholesale end buyers, or private lenders all have top notch due diligence packages. If you want to have access to these same resources, you need a top notch due diligence package as well. If you do the thinking for the end investor and make your due diligence package pretty, your conversions will go through the roof. If you go the investment club and try and persuade your local investor with nothing in hand, you’ll be like most newbies that don’t close deals. Do the work ahead of time. You don’t even need to be a designer as you can outsource that work on freelancer, odesk, or craigslist in the Philippines for a very low cost.
A few things your due diligence report should contain
These aren’t the only things a good real estate investment report should contain but it’s a good starting point.
- Comparable sales
You can illustrate what a solid deal your investment actually is by showing your investors how much your property is already under market value. You should probably also highlight the difference between your asking price and the market comparable by utilizing something like “instant equity” and drawing attention to that on your purchase.
People are visual people and real estate is a tangible item. The more pictures you can include with your package the better. It will help your end investors quickly size up the area and home condition.
- Features and Benefits of the Property
You should look at the listings for the top realtors in your area and model some of the home features and benefits they bring attention to in their listings. Very often you’ll find that average realtors have boring MLS listings and often the top agents have very detailed information on their listing. Make that investment package come to life.
How to sell my end money source?
The good news is that you really don’t have to. Most end buyers, investors, or private capital sources will have their own criteria for investments and real estate. If you try and force them to invest outside their comfort zone with something that doesn’t match their criteria, they just won’t usually do it. They didn’t usually acquire their money by accident and so these are generally knowledgeable people especially in regards to their own real estate investment criteria. By doing all the presentation work ahead of time, you’re not selling them on the investment. Rather, you’re selling them on your competence level and knowing what how to spot a solid deal. By showing this in the most visually impactful way possible, your money source will take you much, much more seriously.
So if you want to close deals, you have to make an investment package that makes it a no brainer for your money source. Marketing is your business – don’t forget it.