Is Word of Mouth the Best Marketing for Private Money?

 

Ok. By now I hope I have you really thinking that private money is a marketing process. It's not a financing process. People always look at me weird when I say this, like I'm from Mars or something. A financing process is where you fill out an application, talk to a few bankers or mortgage brokers, and see if the marble on the roulette wheel lands on your number. The wheel used to be small and there were less numbers. Now, it's more like play Russian Roulette trying to get an institution to finance your real estate investment deals. Unfortunately, many real estate investors like to take the same approach with private money that they do for banks. What you quickly realize, is that that the aspects of the deal that are important to financial institutions are less important (sometimes unimportant) to private investors. And, don't forget that you won't get much private money by just hanging out a shingle - you have to go about systematically and consistently making your opportunity available to those that are ready, willing and able to place funds with you.

 

Now that we've firmly established getting private money as a 'marketing process', I am often asked if 'word of mouth' is the best form of marketing for private investors. Great Question.

This question is rooted in the entrepreneurial axiom of happy customers telling other people about your products or services being the best way to get new customers.

 

I couldn't agree more.

 

The absolute surest (and lowest cost) way to meet new private investors is to have existing investors spread the word about you. If you do things right, and you actively encourage it, you will get referrals for new investors. This will happen in the course of your business, just like if you owned a landscaping company and you took really good care of your customers. Soon the neighbors will want you to quote their yards and you'll build a nice business.

 

Note above how I emphasized the words actively encourage. You should never leave your referrals to chance. Try to encourage it each time you communicate with private investors. Here's a big tip: I routinely write to my private money investors (personal correspondence) and always include a line where I ask "if they know or come across anyone they think would be a good fit for receiving the same type of returns and first class service..." Works like a charm.

 

I can already hear some of you screaming bloody murder:

 

"BUT ADAM, WHAT IF WE DON'T HAVE ANY PRIVATE INVESTORS YET?!"

 

Yup, I saw that one coming a mile away. And it's a good question too. Back in the 1980's, Michael J. Fox was a big star. Family Ties, Back to the Future, etc. Good stuff. Well, there was this one movie he was in, I think it was Secret of my Success or something, where he is a young guy coming up in the world and laments: "how can I get credit if I can't get credit?" He is trying to establish himself and move up in the world and nobody will give him a chance. Seems like a 'catch 22' Maybe it's the same Catch 22 you're in. You want to know how you can use word of mouth marketing to get private investors when you don't have any private investors...right.?

 

Ok, here are a few things you can do.

 

First of all, since you're already in business, you probably work with people right now. Real estate agent, broker, contractor, etc. There is big-time gold in knowing and working with the right people. So if anybody you work with is a scum bag, take an inventory and clean house. It's better to switch now then pay the price later when there's a few hundred grand on the line.

 

Now, if you know some good people - and this applies even if you're working on your first deal - you should really think about getting in good with them. Take some out to lunch, send some letters, throw some gift cards around. Sow the seeds of good will. In the process,  you can begin getting the word of mouth thing going for yourself.  You tell people what you want and listen to what they want. Try to scratch their back a little bit. Refer them some business and it will come back to you.

 

Too many new real estate investors (or those new to private money) will want to jam their offer down everyone's throat without asking first what they can do for the other person. When you're just starting out getting the referral machine going for yourself, the best thing you can do is reciprocate business. This is one of the fastest ways to build word of mouth for your business when you don't have any existing private investors to leverage.

 

Here's something really, really, really important to keep in mind with all of this: you probably cannot pay referral fees to people who introduce you to private investors. So don't ever offer to pay any. Usually, securities laws prohibit you from doing this. Unless you have a registered security and the person getting the referral fee is a licensed securities broker, there's nothing but trouble going this route.

 

Whew! That's a lot to digest. Let it simmer for a little bit. Marinate on it.

 

I suggest making a targeted plan to begin facilitating word of mouth marketing in your business for private money as soon as possible. Yesterday would be a good time to start.