I always say that for any business to succeed they just need two things: Access to capital and great marketing. And a real estate investing business is no different.
We used to be able to rely on conventional lenders, mortgage brokers, and hard money lenders for our capital but, in our post-mortgage meltdown world, it’s becoming increasingly difficult.
So today, I’m going to show you a simple 5-step plan to get your first (or next) $100,000 in private money for real estate.
My #1 Funding Strategy – Private Money
Private money is simply using debt and equity partners to form investment partnerships. It’s my #1 funding strategy. In fact, since 2004 I’ve raised $26.2 million in private money for real estate investments from individual investment partners.
I’ve leveraged that money (other people’s money) to $400,000 in broker and syndication fees, ownership interest in 740 units nationwide, 5-figure monthly cash flow, and 7-figure net worth.
It works.
Private money is how you become a cash buyer with the ability to move quickly and negotiate the best deals.
It’s also how you eliminate your dependency on banks, brokers, and hard money forever. Just imagine what it will feel like not having to worry about whether some random underwriter will approve your loan and never having to pay outrageous rates and fees ever again.
With private money, you’re in control. You decide which deals get done and what rate you’ll pay. So, let’s get started.
The 5-Step Plan
- Identify potential private money partners in your circle of influence.
- Create a million dollar presentation.
- Learn to do the paperwork.
- Learn the rules of “pooling” capital from multiple private money partners.
- Learn to market to potential private money partners outside your circle of influence.
1. Identify Private Money Partners
You are inviting someone to partner with you. You are helping each other.
- People who know you.
- People who already invest in real estate.
- People who already loan private money.
Most of my students absolutely hate inviting anyone they know to partner with them in real estate because they feel like they are “borrowing money” from their friends and family.
Let’s get this straight right now. You are not borrowing money. You are inviting someone to partner with you in a money-making venture.
There is a big difference.
2. Create Your Presentation
You’ll need a short presentation to share your investment opportunity with your potential private money partners.
You’ll share all the usual details on the deal and information about you and your company, but I also suggest adding two things that have really been the “secret sauce” for me.
Alignment and the coolness factor.
Basically, you want to show your prospect that you are in alignment with them and show them something about your project that’s cool.
For example, if you have a prospect that is really into dogs and you are investing in an apartment building, you might let them know that your company handles dogs differently than most other apartment buildings.
Not only do you welcome dogs in your building, but you also are building an on-site dog park where dog owners in the building can take their dogs and socialize.
See? Alignment and the coolness factor.
3. Learn About the Paperwork
Since these are private transactions you’ll want to have the appropriate documents prepared. On a residential deal, typically all you need is a mortgage/deed of trust, promissory note, title insurance (including a lender’s policy), a hazard insurance policy naming your private money partner as loss payee and the proper disclosure.
Because these are considered securities, you’ll need the proper disclosure. A link to each state’s SEC office is located here:http://www.seclaw.com/stcomm.htm
4. Learn About “Pooling” Capital
Pooling capital means that you’re accepting capital from multiple investors into one deal. There are several ways to structure this, and I cover pooling capital extensively in my Getting the Money program.
The most important thing to remember is disclosure. Make sure you follow the state “blue sky” laws unless you are using a state exempt structure such as a rule 506D private placement memorandum.
And always use the money for what you say you will use it for.
Diverting investor funds to pay personal expenses or buy luxury items is a great way to end up just like Bernie Madoff.
5. Learn How to Market to “Strangers”
Now that you have a few deals under your belt funded by friends and family, it’s time to start marketing to potential private money partners outside of your circle of influence.
The main thing to remember here is to establish a “substantive” relationship with someone before inviting them to fund your deal.
It really all comes down to relationship building 101. If you meet a potential investor at a cocktail party or Meetup event, just make sure that you have coffee or lunch a few times and get to know each other before you make your presentation.
Statistically, if you create a list of 10 potential partners and invite them to hear more about your opportunity, five will accept your invitation. From those five, you should end up with at least one private money partner with access to $100,000 to invest with you.
The KEY to getting all the private money you need to fund your real estate deals is: Take Action!