Real estate investors come in all shapes and sizes. They can be part-time school teachers, or retired firefighters looking for somewhere to park their extra cash. Finding interested people to partner with is not as difficult as you may think. Getting them to actually commit, however, can be a different story. There are many people who have funds they are willing to contribute, but aren’t entirely sold either on you or the specific deal. There will be times when you need to put your salesman hat on, and raising capital is no exception. If you need help finding money for your next deal, here are five tips to help you secure the funds you need:
1. Have a plan: Very few people with money, if any, are going to blindly give it to you without a plan. Even if you have a personal relationship in place, you are asking a lot for someone to write you a blank check. Before you even reach out to your contacts, you should have a plan in place for how you are going to find deals. You should have at least a handful of sources where you can find deals. The MLS can be a nice alternative, but not enough on its own. You need to connect with wholesalers, local mortgage brokers, attorneys and anyone else you can generate leads from. You may even want to consider spending money on marketing to build your pipeline. However you generate leads, you need to have a specific plan for what you will do with the properties every step of the way. Not only is this practical, but it shows the people you are asking money for money from that you know what you are doing. In most cases, these people are more focused on you rather than the deals anyway. Have a plan before you make any capital presentation.
2. Get specific: You should treat your pitch as if you were making a presentation to an open audience. You should assume that your financial backer knows nothing about the real estate business. Even if they have some insight, they are probably going to ask you a handful of questions. It is up to you to be prepared to answer these questions with specific answers. By giving a roundabout answer, they will lose confidence that you know what you are doing. There is nothing wrong with saying you don’t know something, but you need to have an answer more times than not. Of course, the goal of every deal is to net the highest possible profit. You need to be prepared with specific answers as to where, when, and how you are going to make that happen. You should have an exit strategy and multiple back up plans in place. Someone you are friendly with may not need a full pitch, but everyone else will ask plenty of questions.
3. Understand financials: Knowing where and how you will invest is important, but not as important as the bottom line. Regardless of who you are talking to, the most important question they will have is what they can expect for a return. Here is where you need to have a good understanding of all of the expenses you will encounter, and what the prospective returns will be. If you have to go back to your financier a few weeks after you have already discussed numbers, they will quickly lose faith in your abilities and not want to work with you again. You should be prepared to give a firm number on what their expected returns will be, as well as their commitment to the project. Many financial partners want to simply write a check and pick up a bigger one a few months down the road. As long as you both understand what the expectations are, you should have no problems complying.
4. Time frame: When your partner will get their money is almost as important as how much they will get. Saying that you can turn the money around in a few weeks may not be very realistic. If you have never done a rehab before, you need to know the exact time frames you are working with. A partner may not want their money tied up for several months. Some may not care, but you need to let them know what is realistic. In most cases, the return will be worth the time frame. If you are seeking money, however, you need to know exactly what you are talking about.
5. Under promise & over deliver: When trying to raise capital, you need to walk a fine line between salesman and educator. Not every deal you do will be a home run. There are plenty of capital investors who are content with making modest returns on their money. Even a modest return will typically be more than what they would get from their bank, or any other investment vehicle. You can’t run around promising that they can retire from what you will make if they partner with you. People will see right through that and find someone else to work with. As the saying goes: it is always better to under promise and over deliver than the other way around.
It is important to remember that you need to convince people to work with you. Even if you have deals, you need financial backing to turn them into closings. Following a few easy tips in your presentation can help get the capital you need.