Raising money or capital for most new real estate investors can be challenging. Whether you are just starting or planning to scale up, having that fund is very important to make sure that you have the source you need for this investment.
I’m here to share with you the four important questions to ask if you plan to raise money for real estate deals. Just a little background about myself, I’m a buy and hold multifamily investor wherein I own and operate over 500 units valuation of that portfolio is over 26 million dollars, and it raises over 10 million dollars to fund those deals.
The reason why I am telling you that I'm not here to brag about me or anything just sharing my experiences. By all means, I am not perfect, and I still make some mistakes, but from those setbacks, I’ve learned a lot, and I hope I can bring you more value as I share my knowledge and personal points of view.
1. Who Are Your Investors Going to Be?
This is about the specific offers and deals that you are providing. Meaning, do you want an equity investor? Do you want an investor that likes to invest in debt offerings or debt deals? Do you want an individual who is more short term or long-term?
After someone signs up to see my deals, we have a phone call, and we establish that relationship because I want to understand their goals and if theirs in-line with my specific model or what I am providing.
If someone is more on a short-term investor who is looking to get in and out, then they are not the right fit for me because I am more on a buy and hold for the long term. That is why it is best to ask who your investors are going to be.
2. What Will You Offer Them
This ties to the first question, so are offering them equity within your deals? Is this debt or specific structure you are giving them, or is it going to be a fixed rate, or is it going to be short term investment?
Let’s say it’s a fix and flip deal, where they invest their cash and after 6-12 months you are going to give them their money back or a long term opportunity wherein longer than that specific period.
The return on their investment is important for you to discuss with them so that you can give them more reason to invest in you. You have to discuss this with the investor you are planning to ask.
3. What is the Cost to Raise Money?
When you are getting more to the syndication side, syndication is just a technical term in raising money from multiple individuals to work on larger projects generally.
When you are putting together these syndications, it’s going to cost money from legal fees to put it together in making sure that everything is legal. There are certain rules and regulations that you have to abide by when you are doing that.
This makes it important to have a proper understanding of your responsibility as an operator. Having these documents prepared by a reliable lawyer is essential to your partners.
4. What Will Be Your System for Raising Money?
Having a system allows you to replicate everything simply. That way, it allows you to go faster. As a prime example, I raise money, how I do it is start accepting soft commitments 1-2 months in advance before having a deal. That way, once it does become available those investors who placed a reservation is the first ones we go to first.
Each one of the deals, there’s a webinar that is hosted to where each of those are very structured in terms project overview, why the deal is great, investment plan, etc..
In conclusion, asking these questions is very important if you are planning to raise money. It will give you enough knowledge and time to plan. This is something that you have to do first when finding investors and partners.
If you have questions, don’t hesitate to contact me. I’ll be glad to help and share you my experience on how to raise money for real estate.
P.S.
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