Why do I talk about raising private money?
Everyone has heard about the horror stories of a local investor coming to a friend or family with a no brainer deal for a property. They’re going to buy it, fix it up and then sell it for a profit, all they need is the money to do the work. So that person lends money to the investor, the deal goes ass up, and the friend or family member loses their money.
The reality…this happens a lot! However, it’s not the norm.
More often, the person who lends the money actually gets a return on their money, sometimes 10%-12% in just a few short months and instead of collecting the money, they place that money into the very next deal the investor is working on. When you’re working with a great investor with high integrity, even in the case the deal loses money, the investor can often be made whole or close to it.
Good investors know that their private money lenders are the lifeblood of their business and we want to do everything in our power to protect, insure, and secure them and their investment!
Getting Started in Real Estate
When I first decided to jump into the real estate game for real, I was listening to a ton of podcasts, watching endless YouTube videos, and reading as many books and articles that I could get my hands on. I was out in the field touring properties, going to meetups, and working on building my team.
The most common question I found myself trying to answer is: How do I invest in real estate with no or low money.
I had $5,000 that I saved for buying a house since moving from Omaha. I also learned that you could take a loan against your 401k to purchase real estate, so after talking to my 401k provider, I found that I could take a loan of $10,000 against my 401k. For me, $15k was nothing to sneeze at…It’s still nothing to sneeze at, who are we kidding?
However, when we’re looking at a down payment on a property, even at 3% for primary homes, on a 3-4 unit building, $15k does not go far. Don’t take this as saying it can’t be done. When it was time to close on my first property, I brought a $10,000 check to the closing table and received a check back for almost $3000 (Previous owner’s unpaid taxes for the previous year) and you would have thought I forgot that it was my own money that I got back! …It be like that sometimes haha.
The real catch is what your plans are. Do you want to buy more properties? Do you want to start your own business or buy one? Do you want to develop land? Maybe you run a charity…These and many other vehicles require capital to get started or be successful.
How do you scale in real estate?
If you go out and ask a bunch of really successful real estate investors how they grew their portfolio, many will inform you the partnerships they had to leverage. It’s no surprise that investing in real estate is very cash intensive. If you don’t have excessive liquidity you’re either out of luck or you need access to people with that liquidity.
No matter where you are, as you’re reading this, many of the buildings in your home city are bought using private money. Whether it’s a single family home that someone bought while it was run down and turned it around to sell to the local couple looking for their starter home; a medium sized building where a few investors came together to buy, renovate, and manager; or a 200+ high rise commercial property where a collection of accredited investors pooled their money to purchase as a syndication.
Real estate investors take a lot of pride in contributing to developing communities around the world. This is true in many ways. Private money, not just real estate investors is what develops most communities.
In fact, most real estate investors who find great success tend to use their own money to lend to other investors while using private money to build their portfolio! When you walk into a room of investors and ask openly, “what is the biggest challenge you face when scaling?”, you will get a variety of responses, but most will be in reference to having limited capital or simply, “money.”
One of my favorite things about entrepreneurship and real estate is that it’s a team game. You cannot do it alone if you want to be successful! So whenever you get started in real estate, they always tell you that you need a core 4, your agent, property manager, contractor, and lender. While it’s true that this is all you need to get started and be successful.
If we want to grow and scale, we need more than that, we need access to capital and there’s nothing like private capital. It’s one of the few win/win relationships out there. Private lenders earn by doing nothing and investors grow our portfolio without having to use banks!
It’s not just real estate!
Real estate development is the most popular venture for leveraging private money. Whether you bring in individual capital partners on a fix-and-flip or you bring in accredited investors to buy a large mixed use development. There’s no question that real estate investors are looking to leverage private capital.
Did you know?!
Tech companies looking to fund research and development; healthcare professionals looking to buy or expand their practices; film, gaming, and media for production costs, marketing and distribution; as well as the agriculture and renewable energy industries for land , equipment, and technology, each and every one of these industries leverages private capital at the early, ongoing, and expansive stages of their business.
Private equity speaks for itself in a number of ways, but even small, medium, and large businesses will acquire other businesses and franchises using private money.
Some people argue that you have to put some money in, so that you have skin in the game. (One of my mentors HATES this concept) The premise is that unless your money is in the deal, you won’t take it as seriously or may mismanage the project, so therefore you must also invest so that “if I lose, you lose too.”
The reality is that it’s all about the money. Banks charge excess fees and points, sure, but it’s also the lesser known stuff that tends to hold us back. When using a bank, you’re often faced with excessively restrictive guidelines around qualifying for loans, the types of investment strategies you can use, and even where your money comes from.
Win/Win
Not everyone wants to make their own movie, start a business, or buy real estate. Most people want the 4 freedoms of time, money, relationship, and purpose. It’s human nature to desire these things. I’m just excited to be able to share with you, whether you’re an investors, entrepreneur, or just an every day reader, you can become the bank and there is someone out there who will make your money work for you, just as hard as you work for you money!