How I Stopped Getting Private Money Loans and Got More Private Money

When I first started raising money from private investors for my real estate investments, I thought pretty much like everyone else did. Private Money 'Lenders.' My pitch to prospective investors was in essence: "will you loan me money secured by real estate?

You're probably familiar with this pitch. Maybe you've used it. Perhaps you've had success, perhaps not (at least yet). One day I was reading a biography on Warren Buffett, billionaire investor and Chairman of Berkshire Hathaway. Buffett has generated returns in excess of 10% higher than the market for the past 45 years. When Buffett took control of Berkshire Hathaway in 1965, the share price was $20.  Today the share price is $122,000.

 Hmm...

Needless to say, I have always thought following and trying to copy Buffett as much as possible - to the greatest extent I could - would be helpful in making more money. Well, one day I was reading a bio on Buffett and I was really enlightened upon reading something not widely talked about, with regard to how Buffett got started in his investing business. You see, Buffett started his investing career by forming partnerships. He brought other people's money into the partnership, invested it and then he got to keep a part of the profits made. Starting out with $100,000 in partnership funding, he soon had people all over his home town (Omaha) wanting to 'get in' with him. After a few years, he had plenty of capital and was on his way. Those first few investors were a catalyst for long term wealth.

The most interesting thing, though, was how Buffett structured his partnerships. Everybody that came in as a partner owned a proportional interest in the partnership. Buffett earned a piece of the profits the money generated (by his management). What Buffett did NOT do, was borrow money. He had equity investors.

A thought hit me when I read this: "I should do the same thing." Instead of borrowing money, secured by mortgages and jumping through hoops each time a deal closed (buy side and sell side), I would raise an amount and each investor would own a proportionate interest in the company, and I would keep part of the profits generated.

BINGO.

This was really rocket fuel at the time. My business started growing much faster after I started raising equity capital versus only private money loans. Another big side benefit of this revolution in my business was that I was able to bring in more private money, because my offering had an appeal to higher net worth investors that could write bigger checks. These investors were less concerned about security and collateral and more concerned about returns and tax consequences of investment. Off and running I was. It doesn't take much to give your business a boost and you never know where the next "lightening" moment is going to strike you.

I heard a long time ago that "luck is when preparation meets opportunity." With real estate, the opportunity is there right now, so get prepared and then prepare to get lucky.