How to convince investor in stocks to invest in me

Question

Hi everyone. I am just starting and I have been racking my brain to figure out how I am going to get some start-up finances. I have a relative who has money, but I don't know if I can convince her to just lend me some.

I was thinking about it, and I do know that she does invest in stocks. I have never asked her about her finances before, but if I had some real hard numbers on how this might work out in her favor, I would definitely be able to ask with more confidence.

Has anyone had any good or bad experiences with this? I know that I will not be able to get a real number because it would just be impossible, but are there any estimated percentages of return to invest in real estate?

Thanks! Melissa

Will Barnard · Answer

To each his own and i would have the exact opposite experience. It was family that helped me get my start, it is family and friends I prefer to pay double digit returns to than strangers, and it is family that I have made a ton of money for. I believe it is all about YOU and all recourses, good or bad, are up to YOU. If you always perform and deliver on promises, then there is never any issues. Back to your question, my advice is to not "ask for money" but offer your relative an investment option pointing out the benefits. Before doing this, you MUST have all your ducks in a row, no the lingo, but keep it simple. Showing that the funds are secured by a deed of trust (unlike stocks that have no security) have insurance attache to it, and that the loan to value does not exceed 70% (you need to make sure of this with a good deal), the investment dollars are safe and will provide double digit returns. (10%+) Consult your RE attorney and make sure that the loan does not violate any applicable usury laws in your state.

Jeff S. · Answer

Melissa Lapinski it might be interesting to find out why/how she has money. If you, w/o money is planning on showing her w/ money how to make some you may be put off. If she has money by being shrewd then she has some opinions about RE. Finding out about those is a good first step. It is possible her money is managed by others and if that is the case it may be hard to get her "adviser" to part with some cash for a beginner in the RE biz. If she wants a partner you will be on a good path. Good luck.

Joel Owens · Answer

Hi Melissa, I just don't go there but that's a personal choice for me. Some of my family are very well heeled but I wanted to do things on my own and not owe anyone anything in my family. It just keeps problems from popping up in the family. You first need to DEFINE what you are going to do. When your family member buys stocks they usually research what they are buying into. You can't just approach someone and say " Can I get money? " You need to let them know what it is you are trying to do. Show that you have thought out everything very well and have considered all exit strategies. The amount you are needing to implement your plan is critical as well. If you need 50,000 for a flip with no experience that carries a much higher burden then I want to do some wholesaling and mailers and need 500 to get going. You might want to review your finances and see for instance if you can cut out some leisure activities and put that money to work instead in investing.

Ben Leybovich · Answer

Why should she give you money Melissa?

James Sinclair · Answer

I don't ask friends or family for money, just not something I like to do. I will use hard money loans because the lenders know exactly what you want to do. They can evaluate the project from an objective point of view. You won't get the money if you haven't done your homework and that can be a good thing starting out. I just think it is better that rushing into something, having it not work out, and then not being able to pay back the people close to you.

Xing Zhu · Answer

Many of stocks investors (traders) I know of were buying real estate between 2010 and 2012 using cash. It seems they have stopped now as the appreciation potential becomes less certain.

Logan Pradon · Answer

Hi Melissa, My advice would be to try and find out why she invests in the stock market. Is it for appreciation or more so for dividends (cash flow.) Then let her know she can get both from investing in real estate. Most stock market investorers (including myself) are value investors, which means we buy stock when we know its cheap and buy and hold just like in certain real estate strategies. So again my advice is find out why she invests in the market, what strategies she uses and explain the different ways she can invest in real estate and why it is a great time to invest.

Stephen S. · Answer

Lisa Phillips · Answer

Excellent posts all! My 2 cents: I didn't ask family for my first 4 houses, but now that they've seen my before and after and cashflow, they offer ME money now, and want to go into deals now. Thats just how it works, you have to earn it sometimes. 2) Because I dont have access to credit (my job is fine, my credit prevents me from getting a conventional mortgage for my investment property because of a foreclosure - although ive purchased 3 since then), I shifted my price range to those of houses in working class neighborhoods. Returns are good, neighborhoods are safe, and prices are super reasonable. Adjusting your price point strategically in a good rent areas is a way to get started. I think its a great way, because your price point is low enough you're not overleveraged as a new investor.

Matt M. · Answer

One another note, look at inflation. The government has changed they way it reports inflation so it doesn't look as bad. If you use the way the government calculated inflation in the 1980s, our current rate is around 10%! That 10% return or less on stocks is getting your relative nowhere. Real estate can offer better returns and can act as a hedge against inflation. Hopefully that is some more ammo for you. Good luck! About working with family: write EVERYTHING down and have an excellent understanding with the situation. Be up front and honest.