Beginner trying to raise capital

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Beginner trying to raise capital

Reuben Royal
Hampstead, NC · Member since 2013 · 26 posts · 1 vote

Hey guys! I'm brand new to real estate investing. Me and a partner of mine have been pooling together our resources in an attempt to land our first deal. We've found some houses that we would be interested in flipping but don't have the down payment money for a loan. I've heard that one option is hard money but carrying a payment like that until the house sells would be tough. So I'm looking to private investors. My question is, since I don't really know anyone with that type of money, how would I go about finding some in my area? I've done a lot of research on investing and have a mentor that has been helping me out and showing me some pointers and I have all the resources of actually making it happen, but I guess I'm not really sure how to find the people with the money and how to convince them to invest in me. Would love to have some input on this from a pro! Thanks!

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y

Here's how you do this. You won't like the answer, but it is how this works.

Talk to everyone you know and everyone you meet about what your doing. Just work it into casual conversation. Don't go to a new person you meet and say "hi, I invest in real estate, would you loan me money?" You think "of course not", but people have said exactly that to me. In that first discussion, don't say much more. You've told them what you do. If they're interested, they will ask more. Maybe right then, maybe in a future conversation. Do this enough times and someone will say they have some money and are interested in something like that.

Now, it sounds like you have deals lined up and ready to go, where what I describe is a process. "How, Jon, can I get one of these people to fund a deal right away?" You cannot, unless you get very lucky. It is a process and it takes time to cultivate private money sources.

If you need money quickly, you have two choices. One is a bank, with all their T'c & C's and paperwork. The other is a hard money lender. Depends on the deal if this can work. A $25K profit, without considering money costs, on a $250K deal isn't much. Pay for money and this becomes a few grand. A $25K profit on a $100K deal is much more interesting. You can afford to pay, say, $7000 in hard money costs and still have a nice profit.

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  • Shadrach Palatino
    Tacoma, WA · Member since 2013 · 18 posts · 0 votes
    13y

    I'm in the same boat, I've got all the tools to succeed, just don't have the capital or contacts.
    Keep me posted on what you learn here and good luck!

    0Reply
  • Reuben Royal
    OP
    Hampstead, NC · Member since 2013 · 26 posts · 1 vote
    13y

    Most definitely Shadrach, I will keep you posted. I'm ready to roll immediately if I only had the funds and I'm fairly certain on at least 2 houses that I've found to make at least a $25,000 profit. Just need a means to getting started.

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  • Shadrach Palatino
    Tacoma, WA · Member since 2013 · 18 posts · 0 votes
    13y

    Have you tried craigslist? there are a lot of local HML's advertising there. I'm going to call a bunch today, I figure it never hurts to ask!

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    Here's how you do this. You won't like the answer, but it is how this works.

    Talk to everyone you know and everyone you meet about what your doing. Just work it into casual conversation. Don't go to a new person you meet and say "hi, I invest in real estate, would you loan me money?" You think "of course not", but people have said exactly that to me. In that first discussion, don't say much more. You've told them what you do. If they're interested, they will ask more. Maybe right then, maybe in a future conversation. Do this enough times and someone will say they have some money and are interested in something like that.

    Now, it sounds like you have deals lined up and ready to go, where what I describe is a process. "How, Jon, can I get one of these people to fund a deal right away?" You cannot, unless you get very lucky. It is a process and it takes time to cultivate private money sources.

    If you need money quickly, you have two choices. One is a bank, with all their T'c & C's and paperwork. The other is a hard money lender. Depends on the deal if this can work. A $25K profit, without considering money costs, on a $250K deal isn't much. Pay for money and this becomes a few grand. A $25K profit on a $100K deal is much more interesting. You can afford to pay, say, $7000 in hard money costs and still have a nice profit.

    4Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    You might approach family first, they may have confidence in you.

    Let's get in reality guys, you have no money to put down, no experience and I guess you want someone to step up, loan you money to buy, to rehab and wait for thier money over a few months for interest? Not going to happen from a RE investor or lender.

    You need to partner with people with experience and it's going to cost you, maybe half the deal, if you're lucky.

    Where is the money for repairs? You may be able to get an option and a contract with an owner to do repairs, if you can contract such work in your area (think license for contractors). This puts you in a lien position and you can sell the option or partner with the seller to get it sold. The best way is to find an arrangement where you don't need the purchase money, let the seller carry it.

    You need to lien on experience and knowledge when you lack money, when you have that, others will provide the money, that's the easy part. Good luck... :)

    0Reply
  • Glenn Espinosa
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    13y

    Google the term "Investment Proposal".

    Now put one together highlighting the $25k deal you found. Reach out to friends, family, people you know who have money. If you can't get the entire amount, get a sizable chunk like 20-30% of total costs and do a promissory note/personal guarantee. Use that money as skin in the game to attract a HML.

    Now the problem you'll bump into is writing winning offers without having the cash in your bank account. Also, some HMLs want to see you under contract before they take you seriously. Catch-22 is you can't get under contract without reaching out to a HML in the first place and getting a POF.

    Solution: find off market deals.

    So where does this road take you?

    If you guessed marketing, you're right. Time to read up on yellow letters, bandit signs, driving for dollars, probates, etc. etc.

    Marketing and finding a real deal is square 1. Money will follow.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    "I'm brand new to real estate investing."

    and

    "We've found some houses that we would be interested in flipping but don't have the down payment money for a loan. I've heard that one option is hard money but carrying a payment like that until the house sells would be tough."

    So what you are saying it seems to me is you have no money and no experience. Family might be the ones to take a chance on you more so than a HML lender or private individual. As John mentioned a 25k spread isn't that much and your 25k might not have included all the costs you will face. A common mistake by new investors is thinking they have a deal and when more experienced people analyze it the 25k profit is even much thinner than thought.

    From a person loaning the money's standpoint if you are borrowing 100,000 the people borrowing 100,000 that have never had 100,000 cash before will not usually understand why the lender is so frugal with it. Unless the lender was blessed with an inheritance as a child or adult etc. they had to work really smart and hard to save up that money.

    With a new person getting a loan as a lender the deal would have to be so fat above normal ARV flip loans that if the buyer defaulted I could sell it off fast and get my cash back. With low profit projections and brand new rehabbers the project is fraught with risk. You might want to look at J Scott's book at 123flip.com.

    I am not a rehabber and do not want to be as it just takes too much of my time. I am looking at buying properties for cash and then making a 10k spread or more selling off to the buy and hold investors. I do not do property management or offer it so I will probably sell to local investors who already have contacts set up for that and buy all cash. Not set on the idea just thinking about it.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    13y

    This is actually pretty easy...

    You mentioned that you had a mentor. Presumably that mentor is a real estate investor himself. So, ask him to partner with you and offer him 75% of the profits if he'll bring the cash for the deal. Most investors I know (myself included) would be happy to give away 25% of the profits if someone brought me a great deal that I wouldn't have found otherwise.

    If your mentor isn't willing to put up the cash for 75% of the profits, that tells me that he doesn't think the deal is as good as you think it is...

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Great advice from the pros above.
    I will add that getting private funds takes time and does not typically happen over night.
    For example, about a year ago, a family friend's son spoke with me about an interest in investing in RE. I gave him some of my deal info, explained how investing with me as a private money lender would work, how the funds were secured, how he would be paid back, and gave all the worst case "what if" scenarios.
    He also informed me that he was working with an agent who was looking for deals for him and he gave me an example of a deal he was looking at. The numbers look terrible to me and I gave hm my opinion as to what he should do and how he can proceed.
    As it turns out, he ended up buying a property and flipped it in about 3.5 months which is very good for a first timer. The problem is, he only made about $25k and invested over $365k which is a very low return for the time and risk. This was because he of paid for the deal. Fast forward, my parents inform me last week that he wanted to speak to me again so I called him back and he expressed a new interest in investing in my deals after telling me this story on his first flip. Long story short, this week he plans to invest $200k (that's all I asked for, not his entire $400k) in one of my projects. Asking for it all on the first deal could scare someone off plus I did not need that much anyways although I could always find a place for it with all the deals I have going.

    This is one of many examples of how private funds may come a year later or even longer. I have got many no answers only to have them invest later down the road.

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  • Hung Nguyen
    Real Estate Investor · Chula Vista, CA · Member since 2013 · 32 posts · 1 vote
    13y

    Well done my friend..... well done.

    0Reply
  • Reuben Royal
    OP
    Hampstead, NC · Member since 2013 · 26 posts · 1 vote
    13y

    Definitely welcome responses from everone. Glad to hear so many sides of it. Thanks to Glenn Espinosa and J Scott in particular! Great ideas, I'm going to see what I can put together and with some work maybe I will have some good news to report soon

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