Blog

Place The Odds Of Raising Private Money In Your Favor

Published on Wednesday - February 01, 2017

Raising private money is about far more than printing out a pretty credibility packet. It’s about approaching private investors with confidence, preparation and the conviction you’ll protect their capital while delivering a healthy return on their money.

Unfortunately, many first time investors let the initial difficulty of learning how to find a private lender dissuade them. They often never get started in their investing career because they haven’t done their homework to figure out what they need to do when securing private lending for real estate.

With that in mind, here are four techniques to help you in your pursuit of raising private money and to realize your potential as a real estate investor.

4 Secrets to Raising Private Money

Private lending for real estate

1.Do Research to Establish Rapport

It doesn’t matter whether you’re pitching to somebody you met at a networking event or presenting to a family member you’ve known for decades, it’s important to establish rapport (as well as you can) before jumping into all the “facts and figures” of your presentation.

If you’re speaking to somebody you’ve known for years, this can be as simple as asking the person how their favorite sports team are doing.

For would-be private investors you aren’t intimately familiar with, this can mean a quick look at their social media profiles — Facebook and Pinterest are great for this — to find out things like:

  • Hobbies
  • Favorite sports teams
  • Previous occupations
  • Alma mater
  • Anything to do with kids

With a little information on your side, it’s a lot easier to ask the person questions like “I noticed you’re into fishing. What’s your favorite spot?” A casual comment or two before all the “sales talk” can do wonders for making the person you’re pitching to relaxed and more receptive to your message.

Word of caution: As General Patton once said, “A tactic known is a tactic blown.” You don’t want to come off as inauthentic or phony. You should take a genuine interest in the other person. (Chances are, if you do, they’ll take a more genuine interest in the project you’re pitching.)

2. Think Like a Teacher, Not a Salesman

When raising private money, it’s important to remember that the investors you reach out to will have varying degrees of experience in the investing trade. Though some will have an inkling of what a private investor does, a far larger majority will have two predominant thoughts in their head:

  • I don’t know how the investing process works
  • I want to make sure my money is safe

If you go into your pitch with a “get the sale” mindset you’ll likely encounter sharp resistance, and closing the deal will become that much harder for you. But if, instead, you go in with a teaching mindset, an emphasis on educating possible investors on what every step of the private money lending process looks like, you’ll find your presentations much more productive, not to mention enjoyable.

This does require you understand thoroughly every aspect of the private lending for real estate process. You need to be able to explain:

  • How the closing process works
  • How payment schedules work
  • How the investor is protected (promissory note, insurance, etc.)
  • What the risks (and rewards) for an investor are
  • What happens if the house sells for less than expected
  • What happens if there are multiple investors

Focus on answering questions about the investing process, and you’ll likely answer most, if not all, of the objections that a private investor has. (Making the job of securing financing that much easier.)

3. Keep Up Appearances

Whoever said “you shouldn’t judge a book by its cover” never had to learn how to find a private lender. In the pursuit of private money lending, what you and your materials look like — and the image they convey — is a vitally important part of your overall capital acquisition strategy.

This means paying particular attention to:

  • Appearance: You don’t have to dress like you came straight off a Paris runway. But you want to wear professional, sharp-looking clothing that you feel comfortable and confident in.
  • Company overview: Invest money in getting a quality brochure that tells prospective investors what your goals, experience and competitive advantage is in the market.
  • PowerPoint presentation: Forget those boring text-laden slides from the 90s. Use pictures and videos to sell your brand.

4. Tell ‘Em You Don’t Want Their Money (Yet)

Wait! How are we supposed to be raising private money if we tell investors we don’t want their money?

It’s important to realize the psychology of private investors — many of whom are inexperienced — during the course of a pitch. Many may be nodding their head as you speak, but inside they’re thinking: “How do I make sure I don’t get ripped off?”

The easiest way around this is to set clear expectations, right at the beginning of the meeting, that you are “not looking for money “today.” Instead, the purpose of this meeting is to:

  • Educate the investor on the private money lending process
  • Let them know what your business is about (and how you might be able to help them see a return on their investment)
  • Determine whether they are interested in possibly investing with you

You could say something like: “Hi John. I just want to let you know that I’m not going to ask you for any money today. I just want you to share you with how I might be able to help you see a return on your investment, as well as educate you a bit about the process. All I ask, at the very end, is you give me an honest indication of whether you’re interested in working together in the future.”

The Art of Doing Less

Too often many residential redevelopers see learning how to attract a private lender as the last step in accumulating that dream property they’ve had their eye on. But hoping to walk away from a private money lender meeting with a check in hand will actually reduce the chances of you doing so.

But if, instead, you approach each meeting with a private money lender as a chance to develop a long-term relationship — and see what you can do to protect an investor’s capital and help them get a return — you’ll find raising private money is far easier than you once thought.

🔒 Your information is secure and never shared. By subscribing, you agree to receive blog updates and relevant offers by email. You can unsubscribe at any time.