Hard Time Raising Capital

[Michael Timothy]

My partner and I have everything in place. Accountant, Lawyer, Business Plan, Real Estate Agent, Project Manager, General Contractor, Joint Venture Agreement, Hard Money Lender but what we cant seem to get is investors. What should we be doing to be pro active to get in front of Capital. Where do we find interested investors? What questions should we be asking?

[CK Hwang]

Hi Michael, I'm not exactly a great fundraiser, but I do raise funds for my fix and flips and work with a small group of investor's money. From the experience I've gained from a tiny amount of fund raising, this is what I've come to learn

1. I market my investment like a product. Don't market the house itself, but the investment vehicle. For example, I sell my investors on the "Invest in the Californian experience," not house 123 darling street, in the city of xyz.

2. Like any product, you need to consider who your target market is. Mine are high net worth individuals from Asia who want moderate returns from a boutique investment company, and not some faceless fund that controls billions. Consider where and what your market might be. 

3. Yield or % return is only one element in attracting investors. What other elements make it attractive to investor? In relation to point 2, unlike some faceless giant fund, my investors can come touch, feel, even stay in the finished product to see where their money is going. (None has ever taken up the offer, they've all preferred to just stay in a hotel). It gives them a kick and some bragging rights at home "see this house in california, that's one I own...until it's sold"

4. I would define your product. If it's very broad, e.g all kinds of properties in socal, my investors eyes will glaze over. So I narrowly define mine as single family residences in beach towns in orange county. By doing so, they know exactly where their money is going.

5. Using point 4, it becomes a demonstration not only of their collateral, but also the QUALITY of their collateral. Many of my clients who are finance saavy actually find the quality of collateral far more important than the yield. 

6. And it's because of the quality of the collateral as seen in point 5, which allows me to model their worst case situation. for example, if the market crashes tomorrow and we can't get out without catastrophic losses (unlikely since the property market isn't the stock market), what the worst case? they get stuck with a sfr in sunny socal walking distance to the beach for a few years. for 99% of my investors, that is a fairly acceptable worse case scenario, it gives them confidence in investing. Now if i wanted to do the same in Detroit, I would likely to have find a different set of investors. 

7. See if there are other benefits for your investors. tax breaks or write offs? Mine use their investments as a hedge against currency fluctuation as well.

8. Is there any plans or systems in place you have to hedge them against losses? for my company, I hold real estate abroad to hedge against a catastrophic failure of the USD so my investors know their money is protected.       

Sorry to ramble on. In short, I'd encourage you to think of your fund raising efforts like a product and the benefits it will bring to your investor. Then when you have defined the product, you'll know where to find the consumer/investor.