So you’re ready to discuss a great opportunity for you, and a potential private investor- but where do you start? Like with any business, communication is key in real estate investment. Many aren’t sure how to properly communicate with potential investors, and feel it’s uncomfortable, or difficult. Like any other skill, you’ll get better at this with practice, but we’re sharing a few guidelines we’ve learned over the years.
Real Estate Investor Tip: What to say to these potential investors…Here is a mini script for approaching someone to lend you private funds (investors have paid $300 for this at workshops across the country).
Instead of saying, “I haven’t done a deal yet.” Say “I’ve actually been spending all my time on the market research, and putting my real estate team together. I have the realtors, appraisers, contractors, attorneys, insurance, title companies and some private funds already lined up and ready to move on the good deals I have found. With my team in place, and the tools to make the right decisions, I am making good offers that get accepted with great equity. I actually have more good deals then I can handle right now. My private lenders will have little risk, because these funds are secured with very good equity positions in real estate. My private lenders enjoy rates of returns, depending on how long they make funds available, of 8% to 12% annually. Those returns are well above the market average.”
Let them know, with your power team in place that the deals will get done on your watch, and you will pay much better than market return to your investors that are a part of your funding team. Private lenders already know what they are getting as far as returns in the current marketplace, so now you show them how your great real estate deals can smoke their CD rates, and stocks with 8%, 10% or 12% returns with your secured real estate.
Here are some ways to get a jumpstart on securing private funds:
- One is to start with your family.
- Next, talk to people you know such as friends and co-workers; or ask if they know anyone who is not happy with what their money is doing for them right now.
- Run an ad in the newspaper to spark some interest. Be careful about this step, I’ll explain in a moment…
- Another tip is to get a few people who were willing to listen and set up a meeting group to discuss. The reason for this is you get them in a meeting and create competition for the great rates of return you’re offering. Let them know that you only need a little more money to reach the capital goals, which means that the people in the room may miss out on your great investment returns offer if they wait to make a commitment to you.
So what do you discuss once you’ve gathered the group?
You’ll tell them that you are looking for a few good lending partners to fund your real estate business and that you need $200,000 more to reach your yearend goal.
There may be $800,000 in funding available between everyone in the room, so you let them know that you need a lesser amount of $200,000 because this creates a scarcity.
Do you see the power shift here? Scarcity is your secret weapon, and let me tell you why. The potential private lenders know that if they want to secure larger rates of return with you they better raise their hand, or they will potentially lose out and see someone else make a deal that they could have had with you. Now they will be forced to go back home and look at their lesser rates of return on their current investments, which gives them a level of discomfort and sometimes disdain for their perceived inferior rate of return. Now you’re using human nature against them, in that you always want something that you feel you cannot have, which in this case is the coveted shiny new rate of return by investing in your real estate business. You may secure them all this way.
The group setting also puts others at ease because they are around you, and can ask questions that most likely the individual person would not have asked otherwise. A group discussion usually sparks more questions which helps you to flush out and conquer any concerns from your potential new money sources. In this type of setting where a person can watch others get excited about making money together, that person will tend to gravitate towards doing the same which can be a private funds victory for your real estate business.
Now, you do need to do a little more homework if you are going to be using this strategy to find money… soliciting for private funds has a whole set of rules governed by the SEC. I strongly recommend taking a class with Alan Cowgill or someone who teaches specifically on this topic and how to do it right… OR meeting with your attorney to have your documents set up correctly. Trust me; you don’t want to do this step wrong. Tens of thousands of legal fees later on a deal gone bad is a tough lesson to learn, so avoid it NOW… However, this is a very strong strategy to raise funds!
The biggest mistake in this method of money sourcing is not asking. The point is that you don’t know unless you ask. It is okay to eliminate options because it helps you move onto the next option, which may turn out to be your next private lending partner, and it helps you get better with your delivery.
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