How to raise seed money for a real estate business

Question

I'm looking to raise money for my wholesaling business, and I would like guidance on how to go about this. I just finished reading "Raising Private Capital" by Matt Faircloth so I have a couple ideas.

Right now I am looking into a structure like this:

-Borrow from an individual with an IRA -> convert to a SDIRA

-Make loan interest and principle payable at the end of term (because it's an IRA)

-Structure similar to a construction loan with monthly drawdowns of about $5k for the highest probability of success with direct mail

-Possibility for an equity component: pledge a percentage of profit along with normal interest in the promissory note (a joint venture)

Would this be attractive to a potential investor considering I am wholesaling in California and the average fee is $15k-$20k on the lower end?

Lydia R. · Answer

@David Reo I totally applaud your enthusiasm and ai have no doubt that you will get started, but I think that you are being a little too optimistic about the idea of someone else coming in and bank rolling this venture for you. Especially since you dont have any experience. It took me 4 years to build a track record strong enough to convince a private money lender to put some capital into my business. I had to meet with them 3 times just to explain what wholesaling is. The game definitely changes when you take other people’s money. Now, you are in CA which is an incredibly expensive market so I can understand your need for capital and there is probably a lot more significant payday when you close a deal. That being said, I think its irresponsible to risk someone else’s hard earned capital (or retirement fund if its in an IRA) to fund your unproven venture. Ive been wholesaling for 6 years and I can assure you its not as easy as the gurus would have you believe. Its hard work with no guarantee of a payoff at the end. My advice to you is to get started on your own, or team up with someone that has a little more experience and learn from them first. Do some deals yourself so you can learn and understand all that goes into getting a deal. After you’ve done that, THEN you can start looking for private capital to fund and expand your growth.

Lydia R. · Answer

@David Reo LMAO 30-40 calls a day? No sir! When I was making my own calls I made at least 100 calls a day (using mojo dialer) 30-40 calls will be wrong numbers, hang ups etc. Shoot for 100 per day!

Jim Pellerin · Answer

David

You need to bootstrap this. You don't need any money to start wholesaling. You must need to find motivated sellers and cash buyers. You can do all this online for free. You only need a couple of deals to find your growth. Then you can start paying for lists and mail outs. But that's still not necessary if you want to put in the time. When I first started I was emailing every person who had a property for sale or for rent. I would email every new listing every day. It was about 50 to 200. It took me about 14 hours a day and I would track everything. Then eventually I hired and trained an intern to do it. Next thing you know I had done 100 deals.

Matt Faircloth · Answer

@David Reo, glad you enjoyed the book!  Could you PLEASE leave it a review?  Here's the link:https://www.amazon.com/review/create-review/?ie=UTF8&channel=glance-detail&asin=1947200984With regards to your question, your summary on how to structure the loan is solid the only issue I see is that you don't list where you are going to give the lender collateral.  If you are looking to do this as an unsecured loan, you may have to pay higher interest or offer faster repayment terms.  You could also just use the money on a deal by deal basis if you are doing A to B to C wholesaling, so as you find a deal to wholesale the lender steps in and loans the money to get you to closing on the A to B transaction, and bridges you to the C sale.

Lydia R. · Answer

@David Reo I saw you joined my new wholesalers group!! Glad you found us! I can send you the info for the skiptracer that I use

Jim Pellerin · Answer

David

I tracked the day to day activities in a huge spreadsheet. I do that so I don't contact the same person every day. Once I get some interest or some engagement I move them to my CRM. Hubspot has a free CRM. There are some more automated tools available now that can find sellers easier and integrate with it's own CRM and auto dialer, SMS and emails.

It took me 3 years to get to 100 deals.

Joseph Cacciapaglia · Answer

Do you have a track record in wholesaling and you're just trying to scale, or would someone be bankrolling your entrance into the market? These are two very different situations. When you say "seed money", it sounds like maybe this is a brand new venture. With the number of wholesalers that fail in the beginning, I would be very hesitant to invest retirement funds into something like this.

David Reo · Answer

@Matt Faircloth 5-star review has been left! I really enjoyed the book.

I am more so looking to raise money for marketing. Right now that means about $1500/ month. If you have any other tips on doing that, that would be much appreciated! When I get a deal ready to close I’ll definitely look into the double closing option!

David Reo · Answer

@Lydia T. 100 it is! Where did you pull your lists and phone numbers for those calls and how much should I expect to put out for that style of marketing?

David Reo · Answer

@Lydia T. Thank you for the invaluable advice. I will put in the time to build a track record and then go out to raise capital after that.

@Jim Pellerin I like that 14 hour a day system. I would definitely be willing to put in that amount of time or more. Is that 50-200 emails a day? How fast did you get to 100 deals? I figured I need to make 30-40 phone calls a day to be doing deals consistently, but I like the email strategy also and I am interested to learn more.

How to raise seed money for a real estate business

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