September 19, 2012 Josh Cantwell (0) I’ve said it before and you’ll hear me say it again - you need money to invest in real estate. But, it doesn’t have to be your own money. Using other people’s money is a foundational strategy for real estate investing. But how can you get to the point where people are calling you, begging for you to take their money so they can experience the kinds of double-digit returns you’re making already? You can’t chase money. It won’t work. You can’t chase houses - you have to let houses chase you. The same is true with money. You want to be in a position where you can take your time and sift through the deals or opportunities without being forced into something that, in the end, may not be advantageous. You need to have a system in place that, over time, will make people come to you and ask if they can give you their money. One of the best ways to get your phone to ring with potential private capital lenders is by offering equity partnerships. An equity partnership is a deal where somebody is putting up money and some group of people are getting all the ownership of the property to share. The percentage of ownership depends on how the deal will sell. You don’t have to have a title to a house to offer an equity partnership. If you have a contract on the house, you can offer a partnership in the deal, an interest in the property. This is called an equitable interest. You’re not offering an actual security in the property. Now of course, you can’t just place an ad in the local paper or rent a billboard and tell people to call you if they’re interested in investing. You can’t solicit the general public; it’s an SEC rule-breaker. But what you can do is develop a relationship with people and offer that equity partnership. Having a pre-existing relationship with someone means that you have had a minimum 3 “touches” to them within a minimum 30-day time frame. A touch can be some form of contact, mailing, etc One of the best ways touch your list is through a Funding Opportunity sheet. This is a very simple, concise one-pager (or two or three, if you have a lot of photos) that outlines the specifics about the deal, the property, the investment and the return. You want to include as few words as possible yet still get all the information across. Therefore it may take a little more thought and planning to put one together, but you want to make sure the recipient can get a quick, clear sense of what you’re offering. As you can see in the sample Opportunity Funding sheet on the next page, at the top you want to include information about the loan - how much you’re looking for, the interest, total return and timeframe for the loan. Next tell a little bit about the property itself, the project and the neighborhood. Here you’ll want to include more sales-y language to really give a nice but accurate description of the target property. After that, include information about the loan and finally, the valuation/justification information. Once you have all that, then include as many pictures as needed to showcase the property, neighborhood and area. Then, send those sheets out to your list of contacts (as we’ve talked about in previous issues). In order to accurately and carefully track each transaction, you should maintain a Cash Flow Spreadsheet on each property. This is particularly important if you have any that you are retaining as rentals in your portfolio. On these spreadsheets you want to include the purchase price, loan amount, interest split, rent (as applicable), taxes, insurance, operating expenses, closing costs, rehab costs, gross return, commissions, equity split and anything else that is connected to the house. By having this tracking in place, there is no chance that you will not have a clear picture of what is coming out of each deal, and to where. While it is important to systematize your deals and process for raising money, know that each deal is different and you have to learn to be flexible and take deals as they come. Be flexible, but follow a similar pattern. Where Do You Find Equity Partners? Finding equity partners is a long process. There is a saying, “Start now for money you want to raise in five years.” This is a relationship process. People want to know you, know your story, understand your passion and believe in what you are offering. That’s not something you convey overnight. Work on building your list of warm leads - don’t underestimate the value of the social networks, especially Facebook and LinkedIn (Premium). This is a great way to find people who share your interests, would be receptive to hearing your story and are pre-disposed to invest. Start the process now. There is no secret pill or secret strategy that will let you raise a million dollars this weekend. That’s not how this works. It takes time to build relationships and gain people’s trust so they feel comfortable giving you their money.