The #1 excuse new investors make is “There just aren’t any deals.”
But, right behind that is, “I don’t have enough money.”
It’s true, you might not have enough money to do the deal by yourself…but very few people ever do. Those who do have enough probably don’t want to put all their money in one deal anyhow.
So, they pool their money with other investors to spread the risk. This is common in every facet of real estate, from single family to billion dollar skyscrapers.
In the single family space, the investment structure is usually geared more toward private loans while multifamily is focused primarily on raising money for equity. Regardless if you are raising money for debt or equity, the concepts and methods are exactly the same.
There is an unlimited amount of money, you just need to find it
There is literally about $40 trillion invested in real estate in the U.S. and trillions more that want to be invested in real estate.
So, if you’re trying to raise $1 million, you are literally trying to capture 0.0000025% of the market. The issue is not if the money is out there, the real question is how do you find it and use it.
Think about it another way – if just about everyone is either already invested in real estate or wants to be in real estate, then there is must be plenty of capital out there looking for a place to call home. You just need to overcome any reservations and actually start doing it.
Here are 6 simple steps to raising capital for your next real estate project:
1. Create a list
This is probably the hardest step because nobody wants to ask their family for money.
The secret is to tell your close friends and family about what you’re doing, make them confident in it, then ask them if they know anybody who may be interested in being part of it.
Some of them may choose to invest, but your goal is to get introduced to their connections.
So, create a list of your friends and family. Focus on the ones that either A) want to invest, or B) are likely to know people who will want to invest.
2. Formulate a pitch
You’ll want what I call a “quick pitch” and a “follow-up.”
Your quick pitch, or elevator pitch as some people call it, is simply a quick summary of what you’re doing and how you do it.
The best way to create your quick pitch is to go to a networking event and explain to a dozen people what you do. The first person you meet will get the long version, but by the last person, you’ll have an extremely succinct pitch, if simply because you’re tired of explaining it to everyone.
The quick pitch
It can be as simple as, “I’m an investor. I focus on finding unique and innovative ways to rebuild communities, create wealth for my investors, and add value to my partners.” Once you have their attention, you follow up with how, “I do this by targeting underperforming properties in high growth areas, partnering with experts in the area, and creating a strong operations plan to reposition the property to create added wealth for everyone involved.”
I just made that pitch up, and you’d obviously need to tailor it to exactly what you’re doing. Remember, it’s just a quick pitch to capture someone’s attention. Once you are engaged in a conversation, you should be prepared to explain in much more detail.
The goal of every interaction is to get a follow-up coffee or lunch meeting. During the meeting you should talk about your strategy, criteria etc. Some people will actually create an example deal using a real property (usually a deal they already own or even one they don’t own at all).
Regardless of your style, make sure to “ask for the sale.” In essence, you should not be afraid to ask if they are interested in investing in a deal if it meets your criteria. If they aren’t in a position to do so, ask them if they may know one or two people who would be interested.
3. Build credibility
Why should anyone want to give their money to you? You’ve created a list and have your pitch ready, but you still doubt if anyone would be willing to invest with you. After all, there are people way bigger, smarter, and more experienced than you.
The first thing is to overcome that mental barrier. People can and will invest with you, as long as you show that you are capable and credible. You are definitely capable, so we just need to build credibility…
…and you do that by finding partners and mentors who are far more experienced than you. By surrounding yourself with experts, you become more credible automatically. You can showcase this in your pitch, on your website or podcost, or anywhere else.
You’re basically saying, “this is my team of advisors, and I don’t do a deal unless they’ve also agreed that it’s a good deal.” Your investors will trust the fact that you are surrounded by knowledgeable people.
4. Grow your list
By this point, you’ve already created the building blocks to raise money – now, you just need to expand it.
The absolute best way to grow your list is to create your own platform, and then spend your time promoting your platform.
Your platform can be your blog, podcast, YouTube channel, Facebook page, or whichever method you are using to connect with the broader public. It will allow you to get to know other investors and online personalities, showcase your knowledge, and promote your name/brand.
In addition to building a platform, you need to have a newsletter. If you aren’t doing any deals right now, that’s fine. A newsletter just makes sure that your investors don’t forget about you.
5. Be professional (but be yourself)
Being professional is more than just wearing a suit. It’s how you present yourself in all mediums including your business card, website, and social media, and photos.
So, get a good looking photo of yourself and use it across all platforms. Build a great website or have someone else do it if you don’t know how, clean up your social media accounts and delete all those old comments and photos, and don’t forget to dress and act professionally.
In my personal opinion, you need to dress professionally but you also need to be true to yourself. If you’re a blue collar person from a blue collar town, people will think you’re being fake if you suddenly start wearing a suit to Starbucks for a quick coffee.
The only thing worse than being unprofessional is being fake. So, take care of your appearance, wear quality clothing that fits properly, and act like a professional. But, make sure it fits your personality and style.
6. Be patient
This can take months to develop and may take years of persistent work to truly grow into something worth admiring. In fact, people who have been doing it for a decade are still trying to grow their network. The goal is to never stop growing!