Making money through real estate is a proven way to make money. Investors may specialize in different areas of real estate, such as residential, multi-family or commercial. Some investors “flip” houses for profit, while others hold on to real estate for a long time. Some investors advertise online, while others are found through word of mouth. If you want to find real estate investors, you have to go where they go. Most investors are very interested in working on deals relating to their specialty, so it is not hard to get their attention. Real Estate investing is a relationship business, if you are serious about building wealth in real estate you will need to be committed to networking with other investors.
Visit the websites for REI Club and National REIA to find the local real estate investor’s club near you. Find out when they are having their next meeting and attend, most of these meetings take place over lunch and usually don’t cost anything to attend. REI clubs might specialize in a certain area of real estate, so contact the group leader first and tell him what kind of investor you are seeking. You will likely meet several investors at these groups who may be interested in working with you. Be aware that most of the networking takes place after the meeting, so plan to stay for the entire meeting. Visit Craigslist and look through the “Real Estate” section for investor ads and contact the posters. Ads that say “We Buy Houses” are usually placed by investors or groups of investors. Post an ad online asking investors to contact you and add any other relevant information that might interest them. Real estate investors spend a lot of time online searching for new deals, and they might come across your ad. Ask any real estate agents you know if they personally know any investors. Many investors are not agents themselves but work closely with agents. Finding an investor through word of mouth is always a great option, because they are recommended by someone you know.
A caution for all new investors, don’t trust everyone who says he or she is a real estate investor. Do some research on the investor before doing business with them. Real estate investing is so much easier when you have private money behind you, but you should know that if you find a deal, a highly profitable deal then there will always be money out there. First, you need prospects, you need to target people who CAN give you money. Some ideas are relatives, friends, co-workers, doctors, dentists, lawyer, accountants, neighbors, etc. Once you have a couple prospects you need to know what to tell them. Come up with a plan – What do you do and how do you make money? For example, I buy houses in need of repair at substantially less than fair market value. I then supervise a crew and renovate the homesand resell it quickly for a profit. These lenders may agree to lend you money at 10%, 12%, even 15% simple interest for a term of twelve months. You pay them interest only payments monthly, quarterly, or whatever you agree upon. You promise them you will not ask for more than 70% of the after repair value ensuring their loan will be protected by sufficient equity should the deal go bad.
You would then give them a title insurance policy, a homeowner’s insurance policy, a first mortgage position, a personally signed promissory note, and an appraisal on the property. You share with them your plan of what you are going to do to the house. Once you have a plan, convert it into a marketing tool you can use to recruit investors. Create an “introduction” to your opportunity, explaining what exactly you do and what you can offer them. You should always Jazz it up with questions like, “Are you happy earning 4.9% on your CDs? If not, I can help.” Comments like this will keep their attention. Put this Introduction in the hands of all of your prospects.Prepare a presentation to sell this opportunity to your prospect. Create a package building your credibility, for instance, a credit report, list of assets, previous deals, referral letters, employment information, whatever makes you look good. Present the opportunity educating your prospect on what private lending has to offer. Pay them back and do many deals.
One of the biggest mistakes that new real estate investors make is that they spend an excessive amount of time learning about finding and typing up deals but a small amount of time on how to raise equity capital from private money lenders. It’s just as important, if not more important, for real estate investors to understand the nuances of raising money as finding the deal. Finding a deal is great but if you do not have earnest money to tie up a deal or funds to purchase it, then all that time and effort could be a waste of time. When you make an offer on a piece of property, it may be expected that you place an earnest money deposit down with your offer. If you are currently living paycheck-to-paycheck, coming up with even a few hundred dollars can be a big hurdle in launching your real estate investment business, let alone thousands needed for a purchase. Hence if you work on raising capital from private money lenders while locking up deals then you will have a greater chance for investment success.
The primary investor circle is composed of Friends & Family. Many real estate entrepreneurs/investors turn to friends and family for their first funding needs. Friends and family financing is popular because it is easy to get in front of these people who know you best and they are inclined to say yes. But there are negative parts of raising money from friends & family as they may not be sophisticated enough to know what is a good deal and what is a bad deal and this can lead to problems when a deal goes sour. So, when you take funding from friends and family by very clear about the risks and downside so everyone knows the potential pitfalls. I would also strongly suggest only taking capital from friends and family members who can afford to lose the investment. That way, if the investment does turn out to go sour, at least you won’t lose a valuable relationship. In addition, friends and family often cannot come up with a lot of capital so friends and family can get you into business by providing you initial earnest deposit money so consider this source your angel investment source of funds. The money from friends and family will give you time to create value by locating and locking up deals so that you can either raise additional money from this circle of investors or raise money from a secondary source of investors.
A secondary source of investors could come from The secondary circle of investors consists of the Friends and Colleagues of your current primary circle (the bigger your primary circle then the bigger your secondary circle of investors; get out there and make more friends and contacts through forums and other social networking groups). This is the second best source for raising capital and will be more receptive to listening to you given that you have been provided an approval from your close friends and/or family.In addition, this group of folks is a bigger capital pool as there are more people in this group than in your primary circle which will allow you to raise equity for your investment projects once you have locked up your deal using your friend/family investment. There are negative parts of working with this group as it is likely to take more time to raise money from this group as they are lessinclined to say yes as they do not know you personally. To raise money from this group, you will need prepare to an investment presentation and spend time meeting these investors at luncheons, happy hours, and dinners.
Another source of investors, are those folks that are most removed from your network as you don’t know them personally in any manner. This group will be the largest capital pool that you can access but it takes the longest to convert them into capital partners. The key question that comes into the mind of real estate investors is how do I find these potential capital investors? To help answer this question, I will provide a few ways on how to reach these potential investors:You can utilize websites such as, Lending Club, Prosper, Go Big Network, Lendpost and Craigslist to post your investment opportunity and actively contact potential third party capital investors. Send out direct mail to investors, the tricky part is finding these investors who are actively looking to invest. The best source I have found is through real estate sales, they provide cash buyers who have bought properties in your specific area for cash within last 12 months. Other sources to use are Melissa Data and Click2Mail, these will get you a list of potential investors who match your pre-established criteria of Median Household Income, Net Worth, Likelihood to Invest, and Responsiveness to Direct Mail.
If you want to have success in real estate you must be committed to finding and building those relationships with investors. The real estate business is a relationship business, so be prepared to put in the time to court these investors. If you are committed to finding potential investors than you will do just that but before you meet with these folks, make sure to have a plan in place so you can sell them on your model and close the deal.