The Case for High Net Worth Private Money Investors

Your best source of private money is from high net worth investors.

This shouldn't take much convincing. Unfortunately, far too many real estate investors concentrate their private money raising efforts on non-accredited investors.

There is nothing wrong with raising money from non-accredited investors. I have had private investors in both accredited and non-accredited status. If someone wants to invest $50,000 of their $150,000 net worth with you, no problem. Just make sure you make the proper disclosures and any filings you may need to do with your state securities regulator. It can (and should) be done when the situation is right. This could be all the time for you or none of the time.

Accredited investors, as per SEC definition, are those with a net worth in excess of $1,000,000 (excluding primary residence), joint household income of more than $300,000 ($200,000 for individual) in the most recent two years. How do you find out if someone is accredited or not? By having each prospective investor complete an Investor Questionnaire prior to receiving the intimate details of your opportunity (you can accomplish this via mail, fax or in person - it's pretty easy and can put investors at ease).

You see, marketing your real estate investment opportunity to people that are ready, willing and able to invest with you is very critical to your success. With accredited investors, you can more easily offer your securities under exemptions from registration (far less paperwork and hassle with SEC filings). This is a BIG plus when you are raising money.

Another benefit of raising capital with high net worth investors is that there is less likelihood of redemption. Redemptions are when investors want to take their money out.  Imagine having $1,500,000 in private money invested in a commercial project and one of the investors wants to pull $200,000 because their 401(k) took a hit. Not good. You then have to find somebody to replace the investors position, which at the very least may disrupt the project.

High net worth investors also better fit the "able" aspect of investors being ready, willing and able to invest money in order for you to invest time and effort bringing them in. This is very important because you want to get the investors money into play quickly after they express interest in moving ahead. If they have to juggle funds around between accounts or combine funds and scrape the money together, you might spend valuable time coordinating things and the investor may get cold feet.

Again, there is nothing wrong with having non-accredited investors. I am making a stronger case for you to work toward having accredited/high net worth investors that make up the bulk of your investor base. Your business will be all the more profitable in the long term as a result.