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With the economy still on shaky ground and lenders requiring that your deal fit neatly into their guideline box, the ability to raise private money has never been more important. You frequently hear people discussing this topic but you might be wondering – where do I begin?
Having raised roughly 10 million dollars over the last 5 years I’ve gotten very familiar with the process but I am by no means an attorney. When raising private money please be sure to seek out a qualified real estate attorney that specializes in securities. There are SEC regulations that you need to be aware of and you will need an experienced attorney to help you navigate theses waters.
That being said, I wanted to offer a few tips to get you started the right way.
Start building out your network of investors
Start with whom you know. One of the exercises we do at our 3-day training events, The Multifamily Investor Weekend, is to have people go through their cell phones and make a list of their potential investors. They then assign each contact a dollar figure as to what they feel the contact might be willing to invest.
Create and nurture that list
Let these people know that you are seriously interested in Multifamily Real Estate and not just dabbling as a hobby. You’ll want to establish yourself as a knowledgeable professional by sending them information on why Multifamily Real Estate is the best play in real Estate today. If you have done your due diligence on your prospective market, speak about why that market has your attention. Set up a schedule to email your contacts, whether it’s bi-weekly or monthly, and stick to it. Be consistent! Make sure that you follow up and respond to any questions or comments. You want to build on these relationships.
You need to market yourself
You never know who might be a possible investor. Let everyone know that you’re actively pursuing multifamily real estate. Your doctor, dentist, someone’s Aunt or Uncle all may be possible investors.
Things To Avoid
DON’T wait to have a deal to get started
Don’t make the mistake of waiting to talk to investors until you have a deal. You should be nurturing your list long before you find one that fits your criteria. When you find something that you want to move that’s not the time to first inform people that you’re interested in finding investors for purchasing an apartment complex. They should already know what you’re up to. Avoid discussing specific properties as you don’t want to put yourself is a box. Allow yourself room to be nimble.
Don’t solicit or advertise
Having a pre existing relationship with prospective investors is required by the SEC. What does this mean? Essentially you cannot go out and advertise your offering to try and find new investors. To keep it simple, do not advertise! This is something that you’ll want to discuss with your securities attorney and thoroughly understand before starting out.
Don’t talk about possible returns
Every investment involves risk. Even if you feel that your offering is the single best investment that has ever existed you never want to guarantee performance. This could get you into big trouble
Private money can be an incredible resource to help you grow your business. Just be sure that you treat your investor’s money like it’s your own and always keep the lines of communication open. Come from a place of service, not selling – set yourself free from the ‘salesman’ mindset.