Raising capital is easy. All you have to do is stare at your phone and wait for investors and lenders to call, or look at your emails until your eyes bleed.
Is this the situation you are in? Many builders, developers, and investors looking to fund their real estate projects are often too busy in the details of their projects to put time and effort into fundraising.
You are not alone in your struggle. Many are able to fund their real estate project out-of-pocket, but it is often necessary to raise funds if you want to scale your business in order to achieve the kind of financial freedom only real estate can provide. Taking part in this industry can be easy as long as you have the passion, the patience, the necessary information about real estate, and of course, the capital.
If you do not have all the funds you need to seize on a real estate opportunity, there are simple ways beyond shelling out money from your own pocket; OPM (Other People’s Money).
What is OPM and where to get it?
OPM is a popular method of funding a real estate project without having to go to the banks or mortgage lending companies. Instead, you go to silent partners who have the money to invest in hopes of getting back some handsome returns but do not have the time nor the interest in doing the work themselves. These people can be your money partners.
However, keep in mind that potential money partners exercise due diligence too. They may receive dozens of pitches, so it is advisable that when you approach a potential partner, you should already be prepared with your strategy. Even veteran real estate developers fail to close the deal sometimes.
How to raise funds for real estate?
Private money partners will always practice due diligence, and each one will have their criteria in choosing where and when to invest their money. Knowing what these are will give you a good advantage. Here are 5 simple things you should do to attract money partners and raise capital.
- Show them it’s worth their time
Many investors have invested in low yielding real estate products because they look for easy ways to get their money back if things go wrong. They feel that these types of products are safe for their money and will make a profit. The point of this is that you will have to prove to them that their money will be in good hands if they decide to invest with you. Show them that you know how to protect their capital.
- Realistic returns
Remember SMART goals? Investors are aware of this, and if your pitch offers heaven on earth, you might come across as a scammer. Set achievable and realistic goals for them. Even though you will likely need to show aggressive growth projections at or above average market rates, be careful not to make promises that are too lofty. It might be better to underestimate a bit and over perform. If this happens, then you will surely be their go-to partner in the future.
Investors will certainly take a look at what you have done in the past because this will be their basis for predicting your future performance. Show them what you have been successful with in the past. Show them facts.
- What is in it for them?
Let’s face it, investors have selfish reasons for funding your projects. They are not in it because they want to help you. Whether it is to make a profit or to look smart in front of their bosses or colleagues, they want value for what they are paying for. Give it to them. ROI is key.
- Build relationships
The personal dynamic should never be underestimated. Given equally presented returns, deals are often chosen based on a connection or feeling that a person is like-minded. Businesses are always built on trust, and there is no other way to do that than by building relationships. Creating rapport, having commonality, showing understanding and appreciation are the building blocks of a trusting relationship.
Raising funds for your real estate project may not exactly be as easy as waiting for your phone to ring or checking your emails, but if done correctly, it is also not that hard. As long as you know how to find money partners, and know what they want and how to give it to them, you will be able to raise your capital.