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How to Raise Private Money for Real Estate and Do It Right

/Raising Private Money for Real Estate Guide Every Investor Needs

Raising Private Money for Real Estate Guide Every Investor Needs

By | 2019-11-07T18:47:03+00:00 November 7th, 2019|Hard Money Blogs|0 Comments
  • It’s almost impossible to invest in real estate without adequate capital, so turning to direct money lenders might be a good idea.
  • If you can invest some of your own money into the deal, this is a great sign of trust with your investors and will give you better chances of securing a loan.
  • Do you want to know how to raise private money for real estate – Do you homework. No one will just give you money without a proper business plan and solid numbers.

 

A challenging process for many, raising money for real estate can be a struggle. Regardless of whether you’re a seasoned real estate expert or a novice looking to get on the portfolio ladder, raising capital is crucial to succeeding here. 

However, with so much more scope to invest in real estate available now than ever before, the timing has never been better!

Here we offer a guide as to how to raise private money for real estate – and do it right the first time.

Why Capital Is Crucial to Real Estate

Without adequate capital, investing in any real estate property or portfolio is almost impossible.

However, to make capital, you need to be able to show potential investors that you have a profitable plan.

This ultimately means bringing in what is referred to as private investors and raising private money. In the industry, by using private money by this means, you’re selecting the OPM route.

OPM stands for other people’s money and is a popular method of raising money for real estate. This is especially so when you can’t always secure capital with those harder money lenders such as banks. 

The Essential Information Needed to Raise Money by Private Means

Before looking to other people to raise money, most people will tend to look inwards before accessing external sources.

Therefore, it’s always worthwhile considering the options immediately open to you that are closer to home before you start to ask other people to invest in your real estate projects.

Make sure you consider all avenues around you first, including:

1. Using Your Own Money

Your first point of call should always be any savings you’ve accumulated. Always start with your own cash and look at the current state of any savings accounts, trust funds, or investments you may already have, for example.

Consider whether there are any ways you could currently be cutting back to save. Even if you can manage to put by just a small proportion of your own cash, it all means better personal financial success in the long term.

Also, look towards items that you may be able to sell off to start raising money of your own.

Better still, by bringing some of your own money to the table, you show potential investors that you too are confident of investing in your own business venture. It also shows a determination to succeed on your behalf.

2. Remortgaging:

Another way of accessing instant money, without resorting to other people, is to remortgage your current property.

Though this should be taken with caution, you may find you feel more comfortable accessing additional cash this way with the easy repayment terms clearly stated by your bank beforehand.

For some people, the idea of simply paying more toward their primary household bill, that is, the mortgage, is often the simplest solution to raising private money. This is especially so if it’s considered as an investment into further property.

3. Forming a Joint Venture:

If you find you have a small amount of money put by already and need to double this simply, could you consider going into partnership with someone else looking to do the same?

By forming a joint venture, you increase the ability to purchase real estate while having both the financial side and the responsibilities.

In time, if your venture does become a success, you could always look at buying that person out if you want to go it alone.

Either way, as a joint venture, you’ll be creating a portfolio in quicker time and without having to refer to several people to do so.

Preparing to Refer to Outside Financial Help

Once you’ve decided to go the private money route and look to others to raise money for your real estate ventures, the hard work then begins!

Raising money in this way undoubtedly requires a lot of preparation beforehand. However, if you can get this bit right, success here offers you the chance to pursue varied investment opportunities while expanding that all-important portfolio.

So, before you begin your search for potential investors, consider the following starting points:

  • Do Your Homework:

To be able to select those investors that are more than likely to be susceptible to your needs, you’ll need to ensure you do a bit of study on their backgrounds before approaching them.

Raising money in this way is time-consuming and costly. So, you can’t afford neither the time nor money getting it wrong too many times, especially at the very start.

Do some research into the people you want to target to ensure the likelihood of them coming on board with you is highly probable.

This means looking towards those who already have a track record for investing, are more inclined to take on a project, and who you know have the money to invest.

  • Become a People Person

Crucially, when turning to other people for money, you’ll need to become the best that you can possibly be here!

You’ll have to start initiating conversation, making contacts, and generally getting to know many new people in the process.

This means you can’t afford to lack confidence, but neither can you afford to be stand-offish. How you present yourself around others may, for some, even be the make or break deal here.

What’s more, start off as you mean to go on, remaining pleasant and professional around people always. You never know when you might need their help!

  • Update Your Knowledge

Because of the popularity of real estate and indeed raising private money for it, there are thousands of books written on this subject!

Added to the surge in books written on the subject are blogs and hugely popular podcasts.

Therefore, it isn’t difficult to arm yourself with as much information as possible before you begin your search for potential investors.

By updating your knowledge, you can not only approach others with ease and confidence about your task – but also display a high level of understanding on the subject when questioned.

Anyone being asked to part with their hard-earned cash wants to know the person they hand it over to is knowledgeable and indeed savvy. So, be prepared to back up your talk with vital statistics, facts, and information.

  • Be Realistic

You may well start out with a specific and rigorous plan in mind as to how many people you’re going to ask for cash, alongside the exact figure.

Yet, in this business, not everything goes according to plan. Therefore, a back-up plan and an open mind may serve you well here.

Should a person you thoroughly trust, and respect offer you less than you wanted, consider the advantages of having them on board and editing your initial plans.

You aren’t guaranteed to get the full amount you’re asking when looking to private investors, so make a back-up plan and consider other possibilities also.

How to Raise Private Money for Real Estate – How to Select Private Investors

Once you’ve done your initial research and feel confident to start approaching other people for private money, there are several ways you can find such potential investors.

Make Networking an Everyday Process

No matter what your financial requirements are or your real estate goals, networking is an essential part of raising private money.

This means being prepared to meet and talk to almost anyone and further your information to them, to reach out to as many interested parties as possible.

Inevitably, once you begin the conversation about your intentions, others will want to know more. You could then just be talking to that one person who happens to know someone else, who happens to invest in such opportunities as yours!

See every opportunity as a chance to network, especially in those very early days. Go to networking events by all means, but never underestimate the power of simple everyday conservations in the most normal of environments.

Building relationships with everyone, alongside those that matter, ensure that you get your name and intentions out there.

Furthermore, ensure that personal networking etiquette is utilized online as well. The potential to network via social media is a huge process. Thus, having a beneficial but ultimately professional social media profile will help immensely.

Take time to build up your online portfolio and make sure your digital footprint represents you in the best light. Promote any previous successes, make your social media accounts positive and progressive, and follow the most influential people that are relevant to your cause. 

Have a Viable Business Plan All Written Up

You may have started receiving interest in your venture, but without a physical plan to offer in writing, talking may be as far as you go.

As soon as you begin looking into your real estate projects and know what you need to raise, write up a thorough plan. This should be detailed enough to offer to each potential investor so they can see what they’re being asked to fund.

Further still, this business plan will not only work to protect their interests but also your own. Having a workable plan will make your proposition seem not only professional but also viable.

You can’t expect anyone to invest money into an idea that you have in your head. Investors want hard evidence and certainty – so prove your potential while showing how you’ll protect their capital.

Raising Private Money for Real Estate Is a Journey

In concluding, the act or raising money for real estate in this way can actually be a remarkable learning journey – and one well worth undertaking.

If you’re committed, driven, and know your end goal –these suggestions should all be doable.

Above all, if you’re willing to put in the groundwork and actively seek out plentiful new opportunities, you may well find this a financial area that you soon begin to excel at.

About the Author:

Yanni Raz is The Founder and CEO of HML Investments, with over 15 years in the real estate and hard money lending industry, Yanni is an expert in real estate investing, trust deed investments and more.

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