Why you should always be looking for investors and how to find them

Estimated read time 7 min read

My grandparents, when I was a child, lived in the mountains, outside a small rural town in northern California, far from the comforts and conveniences of city life. There was electricity but no water, sewer or phone lines. Two-way radios were used to communicate with the outside. The essentials were provided by a well and septic tank system.

The water in my grandparents’ well was not very deep and it wasn’t that abundant. I learned a valuable lesson about conserving limited resources by having to turn water on and off while showering. Even though I was conservative in my usage, at the end of the summer there were times where only sludge came out of the faucet.

After a few more years, a deeper second well was drilled. The worry about running out water became a thing in the past.

How deep is Your well?

You who are growing your real-estate businesses know how much capital it takes. If you’re not one of the lucky ones who started out with a lot, then you need to be able to access other people’s capital to grow. You must have an investor base and continue to grow it.

Recently, I was asked to speak at an event attended by hundreds experienced and aspiring investors. Before I went on stage, the event organizer asked what I needed most to grow my company. He was surprised when I replied, “More Investors.”

“But you have raised more than $25 million and closed over $50 million in real property in the last year!” “Why would you need to find more investors?” He asked, with a hint of surprise.

“Because I raised $25 million!”

The pool of investors is like the well that my grandparents had. The water will run out if you continue to use it. As you grow, you will need deeper and more wells.

Where do you find your investors? Here’s Where I Find Mine…

What comes first, the chicken or the egg?

In real estate, it is a classic “chicken or egg” question: Which comes first, money or the deal? You wouldn’t shop for groceries without your wallet. Similarly, buying real estate with no money is not a good idea.

You’ve probably heard that phrase “Find the deal, and the money will come.” Everyone who says this can’t possibly be wrong, right.

You’re in for some bad news. It won’t.

There is good news. The Securities Laws are very specific in how you can solicit investors to your deal. If you don’t have a deal, you’re only soliciting yourself, your abilities, and your dreams. When you don’t have anything to offer, what better time is there to establish those “pre-existing relationship”? This will reduce the chances of you breaking the law.

How to get money without a deal

When you are looking for investors, you can do so by talking about your work, your methods, the results you have achieved, and what you expect. You should not pitch your idea to wealthy accredited investors you have never met if you have never raised any money. They are the ones who get pitched the most and they have the best options. Focus on an audience who is more likely than not to listen to your message – people with whom you have a relationship.

It’s not by accident that most startups are funded through friends and family. The reason is that it works. But more importantly, it’s likely because no one outside of the founder’s inner-circle will take the risk with an idea that hasn’t been proven. It’s no different in your real estate business.

I have heard it before and I’ve experienced it. When I first started this business I was working at a grocery shop. I was only 20 years old. I knew no one who had two nickels to rub together. All of my friends lived paycheck-to-paycheck, just like I did. That didn’t stop my talking. The word gets out. Your inner circle grows. Conversations develop. Things happen. You need to be transparent, consistent, and authentic.

You can expand your inner circle. Join the Chamber of Commerce. Attend REIA meetups and meetings. Go to real estate conferences. Learn about the people on BiggerPockets. One of the most fruitful outreach efforts I’ve undertaken over the years was simply talking with others on the forums. Always be polite and helpful. Never argue with people. And always add value to your conversation. Over time, you will build relationships.

What to say to people

What would you say to those in your inner circle when speaking with them? Inform people that you’re in the real estate business. Tell people about the deals you have done or plan to do. Find a partner that has something you lack and work together on deals to establish your track record.

Do not make it a pitch. Just integrate your story in the conversation. You should tell everyone about it, even if they don’t seem like a good investor. The idea is to get the word out. They may tell a friend, who is interested in your business and put you both together.

Start by telling your story when you meet with an investor. How did you become involved in this business? Why? What do you think about the market? What is your opinion on the market, opportunity, return, risk, and competition? Create a deck of slides (printed or on a screen is fine, don’t carry a projector around) that shows a similar deal to the one you are planning to do. Include a financial analysis as well as some pictures. Your bio should be the last slide, which highlights your experience, knowledge, and accomplishments.

This conversation might go something like: “Here’s an opportunity that I analyzed and is very similar with the one I am looking to buy in the near future. You would make X, Y and Z changes to the property (instead of what you actually would do), and we would then sell it to you in X years, with the goal of delivering X per cent return. Here are some examples on how I (or my partner) have been successful in previous …”

Expectation Management

Once you have been in business for some time, you will find that managing expectations is the key. You should only give investors projections you are confident you can meet.

You can do the same by setting expectations about what it is like to raise money. Because I’m not trying to sell you a $20,000 bootcamp, I can be honest. It will take some time to build a new life. Relationships develop slowly. It’s hard. It’s harder than you might think unless you have an inner circle of wealthy people or those who are well connected. If you are persistent and work towards your goal, you will succeed. If I can, you can. I had to wait several years for investors to start believing in me. You can achieve it much faster with today’s social media and technology.

Continue Drilling

We should be always in “capital raising mode” as real estate entrepreneurs. This means that we always seek new investors, whether or not we are actively trying to fund a transaction. Drilling your well before escrow begins is a great way to ensure that you can make an offer to buy a property confidently. Do not run out of water. Drill, baby, drill!

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