Okay, the question I’m about to answer has a note of panic in it. One our readers, Phil, has a problem and he’s looking for answers – quickly:
“Cody, I’m in a bit of a tough spot. I’ve been trying to make money in real estate for over five years and am now in a bad place where I no longer have personal funds available to use…everything is committed. However I need to get private funds to finish two rehabs already on my plate. Any recommendations? What’s the most effective and low-cost method to get private investors interested?”
Well, the slight panic in Phil’s question is certainly understandable, right? So let’s get right to it…
Systems, Processes, Mentorship
Let me start off by saying – and with no offense intended whatsoever – but after five years in the game, and you’re still trying to crack this code, it sounds like you need better systems, processes and mentorship. We happen to have some phenomenal systems, processes and mentorship at your disposal.
If you’ve never considered them, let me introduce you to one of our three-day events. You might want to put this high on your list of resources. We have amazing stories of successes that come through to us on a daily basis. These can be of great encouragement to you.
That said, here’s some tactical advice that you can use right now…
Since you have two deals on the front burner, now you’re kinda in a critical place. What you need at this point is to have someone else step in to help bail you out.
Because of that, it may be expensive for you. So whoever comes in, chances are – if they know what they’re doing – they’re going to charge you a premium for their assistance.
You may have to view this as a life-seminar along the way. Even if it ends up being a wash and you don’t make any money, it can still be a valuable learning experience. And most all of us in this business have lived through such situations.
With regard to finding someone quickly, my first thought would be to talk to your closing attorney for a warm referral. The attorney will already be familiar with private lenders who are working with other investors.
Because of this networking, they may be able to make a referral for you. This would be someone who is not on your radar, but someone who might be interested in your deals. If the numbers make sense to them, they could step in and give you some bridge funding to get the deals wrapped up.
Talk to local investors in your REIA group who are already players in flips and rehabs. Be honest. Lay it out there…
“Look, I ran out of money but the deals are still viable. I just need someone to provide the rest of the cash to get this done. I’ll split the profits with you.”
If the numbers make sense, you’re sure to find a player who’ll step in. They may take a little control in finishing up the project, but it may be a way to get the capital you need and get the deals off your plate.
While we’re on the subject of private money, let’s take a minute and look at the bigger picture.
First of all, the best way to ask for money is not to ask for money. This is a mindset shift that new investors must make when going out to raise money for the first time. This isn’t doublespeak. Here’s what I mean…
If you’re an investor who:
- Has good systems and processes in place;
- Has taken the time to build a good team around you; and
- Understands how to go out and find good deals…
Then you’re ready to begin seeking private lenders.
Show the Opportunity
At this point, you can show, on paper at least, that if you buy a certain property and fix it up and sell it, you’ll make a good profit and you’ll make a decent return on your investment. Then it’s fairly easy to go to your friends or your family members and those in your sphere of influence and present this opportunity to them.
This will be an opportunity for them to get involved in your passion, which is real estate investing. You can show them that you have these effective systems in place that will protect their money. Show them that you can create a deal and give them a decent return on their lazy capital.
Get Your Ducks in a Row
When I first started raising private capital, I first got all my ducks in a row – meaning the systems and my team of professionals. I created a presentation that explained what it meant for a private lender to lend me money.
Keep in mind that you are looking for money that is not being used to its fullest potential, or what’s called lazy money. An example might be a bank savings account or money in a certificate of deposit (CD). You can show in your presentation the going rates and how low those returns are. (Of course they already know, but you want to emphasize the fact.)
You want to give them the opportunity to invest in a real asset, which is real estate. You then show how they can earn 8% to 10% return on their money and have it secured in a first trustee position against a piece of real estate.
Combine that education with the systems and processes that you have in place and the solid team members that you have in place. Then show them different ways that they can get their capital back, along with the interest on their money. This sets the stage.
Now you’re ready to go to friends and family with your presentation. I call these financial friends, which could be anyone that you know – a small business owner, an attorney, your dentist, your grandmother – the list is endless.
You are not asking them to lend you money, you are giving them the opportunity to make an investment and earn a greater return on their money.
In my business, I like to have these individuals set up and prepared ahead of time. I explain that when I come to them with the amazing deals, I will need a quick answer at the time. This means when I am raising money – I’m not asking for money. The asking comes later.
This isn’t difficult, but it does take time and effort. Once the foundation is laid and once these investors have enjoyed the return on their money, they will want to invest with you again. And again!
Hope this was helpful, Phil. Best of luck to ya.
Give us a Shout
Got any other tips that could an REIer get out of a deal quickly? Share with us in the comments section.
Until next time…
- When you’re up against the wall, turn to investors who are already in the game and ask for help. It may cost, but it will be a lesson well-learned.
- Think about someone like your closing attorney who is already in the network and who may know someone who is ready and willing to step in and help.
- Once you’re “out of the woods,” make strategic moves to build your team of private lenders. Create your business structure and your presentation, and then build your team.
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