When it comes to raising private money for your commercial multifamily property deals, you are only limited by the scope of your innovation and creativity. The amazing thing is that there is a simple, four-part and proven formula that you can use to raise private money for commercial apartments. Most people, however, don’t know about this formula much less that there are four parts and what those four parts are. In this article, we will detail each of these four parts.
Keep in mind that all four of these need to be done simultaneously for the formula to work in real estate investing.
Predisposed: You don’t want to make this a difficult process. So to make it easy, you need to target people who are already predisposed to investing in real estate such as apartments. They have already shown some affinity, some familiarity, and some willingness to invest in real estate. They don’t need persuading that real estate is a good investment vehicle. All they need to be persuaded on is you and your deal.
Control : Preservation of capital is the primary concern before a private investor releases his or her funds. Control is described best as when you are putting together an investment vehicle, how does the investor feel that they are retaining control over the transaction if something goes wrong? If the borrower does not perform, how does the investor get control of the situation?
Low Risk: The second complimentary part to Control is low risk. How do I design a real estate investment vehicle that is as low risk as possible for the investor? Ideally, it is no risk and if you go to the extreme, it is risk reversal. The investor comes out ahead if the borrower doesn’t perform.
High Return: Once you have identified someone who is predisposed to investing in real estate and they realize that it is low risk, then their human greed factor kicks in. The private investor then wants to know how he or she is getting a high return for low risk. You have to design something that is high return, but doesn’t “give away the farm”.
The basis of this private money formula is that you are crafting a financial product thru apartment investing. The better you package your deal, while quickly and clearly articulating the benefits for the investor makes all of the difference in your success in raising private money. With this formula alone, you probably know more about raising private money than 80% of real estate entrepreneurs out there. The key is remembering that all four components need to be done at the same time in order for you to be successful.