By Guest Contributor Mathew Owens, CPA
Raising capital for your deals can be a tough resource to develop if you are just getting started investing in real estate. There can be a number of things stacked against you. Maybe you don’t have enough money yourself or no money, you are inexperienced and do not have any active operations experience or very little. You do not have any deals yet to try to acquire. In real estate its always the catch 22 if you don’t have your own funds where you can’t get the deal without the money, but you can’t get the money without having a deal first. There are a number of ways to counter some of these problems when raising capital for real estate.
First, it all starts with your ability to teach others how their money is protected with you on a real estate transaction. In order to do that you have to understand the deal in and out, the paperwork involved, the risks and how to mitigate them and explain it all in a simplified way so a person with no real estate experience can understand.
In order to show them the right protections you can discuss the multitude of due diligence steps you took on a project, which should be done well before even asking for the funds from an investor. Sometimes you do not have 100% of the information but you can analyze a deal close enough in order to make sure the information you do not have yet is reasonable. Some of the things you can show a prospective lender or equity investor to raise capital on a deal are:
– The loan to value of the property backed up with comparable sales or an appraisal report
– A full cost breakdown of the project with timelines in place
– A detailed list of the paperwork in addition to what each means and how it protects them.
– The renovation budget
– Your team and experience with your team
– How much money you have in the deal
– Previous experience and your current financials
– Your insurance on the property including general liability, construction coverage, title insurance
– The investors projected profits
If you are able to put these types of packages together up front and know how to show an investor how they are projected, the chances of you raising the capital for a deal just went up by 99%+. Then you just need to get yourself out there and meet people. There are also professional lenders that will lend you a percentage of the total project cost and purchase of the property. Normally you have to then bring in another investor to pay for the rest of the costs if you do not have the funds yourself so you still need to outline your deal and explain it to investors in detail for them to feel comfortable investing with you.
Please remember, when you are raising other people’s money, the money they are lending you is equivalent to a ton of their time that they took to earn it. So if you lose it you are taking away a piece of their life. Every investor will hit bumps in the road, but if you protect your investor’s funds over your own, you will be able to raise capital for years on end, which means making money for years as well.
Mathew Owens, CPA