I recently did a deal with a buddy of mine. We were putting in an offer on a 164-unit apartment complex and needed to raise $1.1 million to close. I put the word out and in less than 60 minutes we had $2.55 million in pledges.
Just. Like. That.
So how do you raise $2.55 million when you only need $1.1 million?
I’ve got two fundraising insider tips to share with you, but keep in mind that these aren’t quick tips. Raising that $2.55 million took minutes, but it was based on work I’ve done piece by piece over the years.
Ok, so let’s get to those tips.https://www.youtube.com/watch?v=8Z7n4a-sBLM
Tip #1: Make a Devastatingly Irresistible, Simple Offer
You want to give investors something they can understand. And you want it to be irresistible. In this case, we ran numbers, talked to the commercial lender, rand some more numbers, and decided to offer a 10% preferred return, plus they own 1–1.5% equity, and their principal is returned in 18 months or less. See? Irresistible.
One thing that’s especially tempting about this offer is the principal return in 18 months or less. Investors love that.
So if you’re crafting your next offer, whether it be a residential flip, a rehab, a rental, or an apartment deal, make sure that you show your investors how they can get their principal back in three years or less. Anything longer than three years and many people have a hard time projecting. But if they can get their principal back in the next 18 months to 36 months, that’s pretty great. They can take their chips off the table, get a return, and own equity in the deal.
Now we had to go back and forth quite a few times to figure out how much equity we could give up, what return we could give, and how to structure the deal. It’s worth taking the extra time to make sure you’re going to get an overwhelming response.
The last thing we wanted was to be tasked with raising $1.1 million, holding a webinar, and just hearing crickets because the offer wasn’t juicy enough. Make sure your offer is simple and devastatingly irresistible.
Tip #2: Know Your Avatars
Our next fundraiser insider tip is to know who you’re raising money from. What’s your audience?
I look at three different avatars. First, I like to work with people who have an ecommerce business. In particular, I’m looking for somebody who’s going to exit the business, has a lot of net free cashflow, and is looking to diversify outside of ecommerce.
My second avatar is the corporate fortune-500 lifer who’s now retired and has a big pension. And my third avatar is the active (or passive) real estate investor, who already has an affinity for real estate.
When you know who your avatars are, you can start thinking about where to go to meet people who fit your avatars. How do you bump into them, share business cards, and talk strategy?
When I say “talk strategy” I’m not saying you should be pitching these people. Why? First, because you have to make sure you’re compliant with the SEC rules. And second, the sooner you pitch somebody, the less likely they are to invest. Seriously, the longer you take, the more they’re going to invest and the more often they’re going to invest.
The Slow Roll
I always slow roll it and focus on building relationships. When I get on the phone with people, I tell them straight up that the SEC requires that we have an existing relationship with our investors and so there’s no pressure here—I’m not in sales.
Instead, I want to talk about peoples’ goals and objectives. What do they want to accomplish? How much money do they have? Do they have a financial advisor, an attorney, or a spouse who’s going to help them make investment decisions? Do they have investment experience in stocks, bonds, oil and gas, crypto, whatever? Are they sophisticated?
People love this. They love the fact that there’s no pressure. They love the fact that I’m all about relationships. I’m all about honoring people and the work they’ve put in and the money that they’ve saved. So I want to honor that by not punching them in the mouth with an offer.
I tell them I don’t care if they invest in my deal or not. I can use their money, but I don’t need it. I just want to educate them about the advantages and disadvantages of real estate. What are the things you should look out for? What are the things that can make a deal really go? How are deals structured? People really love that.
Even at the end, I don’t sell them. I say let’s just get together again. I don’t even bring up an offer of a deal. And every time, sometimes at the first appointment, sometimes the second, the third, the fifth, they say, well, what do you have?
The fact that you did not pitch a property makes them want in. People want what they can’t have. People want to be in the inner circle. In the end they’re foaming at the mouth to do a deal and they’re excited and ready to go and you didn’t even have to sell them.
So that’s it. That’s the absolute best way to recruit money. That’s exactly what we did to fund this apartment deal. I did a webinar and said we could only take 11 investors, so the first 11 people to reach out to me and text me, I would reserve a unit for them. Boom, within an hour, we had oversold at $2.55 million.
It starts with an irresistible, devastatingly simple offer for your investors. And if you’re making that oh-so-tempting offer to the right people, you’ll have your deal funded in minutes.