Got Private Money?

Private money is the holy grail of the real estate business today and the art of raising it can make or break your business.  One of the biggest mistakes that I see new investors make is that they wait until they have a good deal to start raising private money. Most people think that all they need to do is find a good deal and the money will just show up. If you have a good deal you may get lucky and be able to quickly find private equity, but “luck” is not a solid business practice.

First rule of private money is you must always be looking for it. Once you have a deal it’s far too late to start raising money. Planning for funding is one of the biggest areas that you need to consistently be working on. People invest in you first and the deal second.

Networking is the backbone to raising private capital. Relationships are the key to networking so in short relationships = Money. You must always be building relationships if you want to be good at raising private money for your deals. Relationships can take time to find and form so time is of the essence. Get started now! Don’t wait until you have a deal. If you are intimidated about speaking to potential investors about doing business with you then that is a sign that you don’t have your real estate education in place as well as you should have. If you know your business, it’s not hard to talk about it. If you’re nervous then keep studying until that nervousness gets replaced with an excitement to talk about what you are trying to do. It will happen.

Go where the money is. One exercise I suggest is to write down all of the places that high net worth people congregate in your area. Next is to see if you can get yourself into those rooms. Try country clubs, business events, and social clubs. Make sure you are a fit for the environment because if you are not, networking will be difficult.

When I first got into real estate I was 27 years old. One of my first networking attempts was at a luncheon at a local Rotary club. I live in Georgia and I was told that the money was in the Rotary club so I stopped by for the new member lunch. I was the youngest person in the room by 30 years! Needless to say I didn’t do much networking…they made me sit at the kids table. This is what I mean by make sure you fit into the environment.

Next money raising tip I have is to approach all new relationships with friendship first. When you meet a new potential money contact, it’s ok to discuss business but offer them friendship first. Many times I have met a new person and tried to become friends first and the person didn’t respond well to me. Later on they find out I am capable of helping them in their business and then they are all too quick to be my friend. This doesn’t make me trust them because now I know that our relationship will only be about the money or help I can bring them and if that runs out…so will our relationship. People invest in you first, then your deal, so spend the time to invest in them first. Build the friendship and then see if they can help you by investing money into your deals.

Your net worth is equal to your network. If you have friends in the right places then money will not be that hard to find and it will be there for many future deals. Having good financial relationships is not only a good idea, its good business.

Follow up is the last key to raising private cash. Keeping in touch and consistent contact with new money partners (friends) is the key to having money available to you when you need it. Making new contacts and finding deals rarely happens at the same time. You need to not only meet new contacts but follow up with them on a regular or semi-regular basis.  I suggest creating a data base of people that you need to stay in touch with and reach out to them and let them know where you are in finding deals. This way you keep the relationship current and when you do find a deal, you have created a pool of potential investors.  Stay in contact to get a great return on your investment.

Remember: great deals don’t attract money; great relationships with great deals attract money.