3 Critical Things You Must Know When Raising Private Money To Buy Real Estate

In my years of experience in the real estate investing world, I have found that few people are aware they can use private investors to finance their real estate investments. Of those that do, most think raising private money is a hard thing to do.  Instead of going to through the steps to learn about private money - how to attract it, how to set up the deals - they take the same path that they always have - fill out a 1003 Uniform Residential Mortgage Application, wait for a long time and hope & pray the deal closes. More often than not, in the current mortgage market that deal is not going to close or there will be some unwanted twists.

This can be deflating for real estate investors that are just starting out. Even for seasoned pro's it can be tough to play the mortgage or hard money roulette wheel. As much as you'd like,

emotion comes into play - you've worked hard to find the deal, you have developed the knowledge to put things together and now you can't close. Frustrating to say the least.

My experience has shown it is best to be proactive. When it comes to private money, it's simply a matter of gaining knowledge and then applying that knowledge.

When I  speak to audiences of real estate investors and teach how to raise private investment capital, I find it very beneficial to cover what I have found to be the most critical 3 things you want to keep in mind when raising private money.  Again this is taken from my own experience.

People Do Want to Invest Money (with you)

Despite what you are thinking in this crazy economic times we are in, people are always looking to put their money to work.  They might be looking to ditch their financial planner or to put their dollars into something that won't erode in the blink of an eye. It's important to know that you are not barking up the wrong tree when you start marketing your private investment opportunity. There is a proven market demand for what you are offering.

Confidence is Key

Would YOU invest money with YOU? The answer to this question should be an overwhelming "yes." At all times you must exhibit confidence in yourself, your abilities, your project(s). Just put the shoe on the other foot for one minute: If the roles were reversed, and someone was coming to you for private money and they did not seem confident in what they were proposing, would you be inclined to write a check? Probably not. Same goes for the private money investors that you talk to.

Have a plan

I discussed this in a post the other day, but you must have a business plan for private investors. Not just a 'back of the napkin' or 'sketch in your mind' plan, but a formal written business plan. The "shoe on the other foot" concept should be kept in mind here as well; how would you feel if a real estate investor approached YOU for private money and didn't have any way to walk you through how they planned on making money with your money? Now, what if that real estate investor had a nice, written business plan. Simple to read and understand, you could see from A to B to C how that person was going to make money - how much capital they needed, what the time frame for investment was. You'd feel much better and be more inclined to invest, wouldn't you? I thought so!