Beginner’s Rules for Raising Capital in 2017

Posted on February 9, 2017 by

This year will be different.  Has it happened?  Has the flame gone out? Is the passion gone away? Have you followed through?  One way that I keep the passion alive, is to have access to more money than I can use to produce great investments. Raising capital is not very hard. Getting over the psychological parts of making “the ask” seems to be the difficult part for most people. I have been approached over the past year by a number of people who want me to fund their projects. I can get excited about this because I can see they have a project which will work and make us a lot of money. 

I was at a networking event recently. There where people in the room who wanted to invest in real estate projects and earn a great rate of return. There were people who did not have a clue as to what lending is all about, that there are multiple alternative investments, other than the traditional ways Wall Street gets your money. There were individuals who were reluctant to dip their toes into the pool of lending to investors. There were people there who had projects, which they wanted to get funded. So the environment was ripe for synergy to happen. 

See if you can relate to these stories of what happened at the event.  I met this young and eager rehabber looking to get his deal funded. However, he talked only about the deal. He did not speak to the needs of the lender.  Naturally the young and eager spokesperson’s pitch failed. The young and eager missed the point by talking only about his needs and not about how he was going to protect the money person. At the meeting the money people would listen and evaluate what was being said. Here is a great opportunity to invest your capital into a solid project which will be bought for $120,000, have $30,000 in repairs, and sell for $200,000. In the end the investor will be paid back.  As I listened, I started by asking about the past experience of the rehabber. They were new. They had done one or two projects five years ago. They did not want to put any of their own money into the deal (understand when I use other people’s money I don’t want to put any of my own money into the deal either)!  How do you feel about this conversation? Would you loan $150,000 to this person?

The next conversation, the opening line was “what do you do”?  The answer was I am an investment banker for real estate investors who buy fix and sell properties just like on TV. My friends and family get a higher than bank rate returns. Then the person turned the conversation back to the money people and started to get to know them.  The conversation went to finding common experiences and common ground. The group exchanged cards.

There are many regulations out there when it comes to investing other people’s money. If we are using another person’s IRA money they cannot actively participate in the investments and receive compensation. Talk to Jim Hitt at American IRA or Mike Cornetet at Advanta IRA for professional assistance. If the investor is passive and makes no decisions as to the type of investment, included in the decisions or management of the project, this could be construed as selling a security. There are very specific federal laws which regulate this type of transaction.

Dodd Frank has been in the news recently with the President wanting to make major changes to the way the banking industry conducts business. If we are the money people and we lend to another person, there are certain disclosures which need to be made, the paperwork will have to cover specific items, and the borrower will be scrutinized carefully to make sure they can pay off the debt. Your best bet is to have a mortgage broker and other professionals work with you to make sure the paperwork gets handled properly.

The order in which you ask for money is very important. Understanding the process helps us to be able to raise a tremendous amount of capital to be able to buy, fix and sell or buy and hold real-estate including both residential and commercial.

Doing it right is the key. Doing it right is nothing more than following the right steps when you approach potential investors. Understanding the rules of handling other people’s money is the second step. Making sure the project is a solid one with a high chance of success is step three.

If you want more information about how to deploy your funds which are earning less than 5%, call me and I will be glad to talk to you about what safer investments we can place your hard earned money in, so you can earn a higher rate of return.

Russ HinerRuss Hiner is an active real estate investor, coach and mentor. Russ is currently the leader of the Atlanta REIA Creative Deal Structuring Group and Atlanta REIA Mastermind Group. Russ also teaches several workshops throughout the year on a variety of real estate investing topics such as Negotiations, Wholesaling 101, Wholesaling 401, Real Estate 101, Property Management and more.

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