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Want private money? Well, as you might have figured out, you can’t just walk up to a potential private lender, tell him or her about your “deal”, and expect them to write a check. No way. If you want to be successful in raising private capital for real estate, you have to learn how to “attract” private investors to you. |
So what’s the secret? Or to paraphrase a famous movie title: “What do Private Lenders Want?” The short answer is: put yourself in the private lender’s shoes, and think about what you would want before you invested your children’s inheritance is some real estate deal.
Now, what I’m about to tell you may shock you. It’s not the “easy-no effort” seminar version that gets you all excited, but won’t put a nickel in your pocket. These are answers based on the experience of raising “real money” from “real private investors”.
First, know this. Your private investors are walking around with an invisible antenna over their heads that is tuned to only 1 station: WIIFM or “What’s In It For Me?” Unless you can explain that clearly, quickly and concisely, you’re out. Private lenders have no patience for people who beat around the bush and waste their time.
Second, as a sophisticated private investor, I know that not all deals are good deals, and not all good deals (e.g. good for you) are good for me. So, don’t give me a canned elevator speech, and expect me to be excited and whip out my checkbook. First, “show me the money.”
Third, your private lender is as skeptical of the real estate market as the general public and doesn’t necessarily think it’s a “great opportunity”. How is your approach going to overcome those concerns and in fact benefit from them?
Next, anybody who has become wealthy enough to have capital to invest, did not get there by taking excessive risk with their money. The reason why lottery winners generally end up poor again is because they never learned this principle.
Or as Will Rogers once said: “When it comes to investing, I've always been more concerned with the return of my money than the return on my money."
If you want private money, you need to explain to the investor, how he is protected from losing his principal and how he is going to get his money back (ROI = Return OF Investment).
And you must address the question of risk. Unlike most people, private lenders have fairly low risk tolerance. If the risk level in the deal exceeds their risk tolerance, no offer of a return is going to convince them to place their capital with you.
And the Final and probably the most important consideration for the Private Investor is: “YOU”.
Angel investors have a saying, “Bet on the Jockey, not the horse”.
Think about it. Would you invest your money with someone you didn’t know or respect, regardless of how great the deal was? I don’t think so.
Are you a person of high integrity, who does what she says she’ll do? Do you have the experience, knowledge and expertise and the team to see this deal through to a successful conclusion? And Trust me: No private lender is going to entrust you with their capital, unless these questions are answered and demonstrated to their satisfaction.
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