It’s a common fallacy that you need large amounts of money to get started in real estate. Sure, if you’re doing bigger deals, you need larger sums of cash, but buying real estate with no skin in the game is a fairly common real estate investment structure. For years, that’s what the big billionaire developers did.
Be that as it may, the reality is there’s plenty of money out there just looking for opportunity. And if you have the right deal, the money will listen. So, if you’re a new investor—or even a seasoned one—here are four sources to fund your first (or next) deal.
1. Private Investors/High Net Worth Individuals
You’d be surprised who’s down to invest.
A great way to attract the capital is to basically show the person with the money how said money will help them make more money—all the while making sure they won’t lose it.
To show the feasibility—i.e. how they will 1) not lose money, then 2) make money—I personally use a software that analyzes the deal, runs the numbers, spits out a pretty three-page report with graphics, risk, upside and so on, which makes it easy to present the highlights of the deal.
In fact, if I’m shopping for financing on the private market, I totally bypass the standard forms and just use those reports. It takes me five minutes and makes their job easier, too.
2. Investment Clubs
Similar to a fund, an investment club is loosely defined as “a group of individuals who meet for the purpose of pooling money and investing.”
So how do you find ’em? A quick Google search will yield results.
By law, investment clubs are not allowed to recruit members because it could be viewed as part of an investment scheme. This means that the onus is on you to approach a club.
BetterInvesting, formerly known as the National Association of Investors Corporation, is the pre-eminent advocate of collaborative investing. It maintains extensive archives of information for starting and maintaining investment clubs.
Notice it said that the onus is on you to approach them, whether it’s for the purpose of joining or pitching. Again, these groups are looking for deals.
What works for me? I cut through the jargon and boilerplate, get to the point quickly, and have some visuals to come along with it—not unlike how tech companies pitch their startups. Concision counts.
3. Syndication/Pooled Funds
Similar to the idea above, you simply pool the money yourself and go for the deals. And there are tons of ways you can do it, some more complex than others. (I personally love simplicity in my deals.)
The process of assembling the money is similar to the one described above, except you now become the entity that wields the muscle, depending on the size of endowment, of course.
So, what I did was send it around to a few people who could be interested, and in a matter of minutes, the equity was pooled and I’m helping the group make a bid.
See how easy that was?
4. Boutique Accounting Firms
I was actually surprised this was an option, but really shouldn’t have been. If you’re raising a fund, you’re limited to accredited investors (although regulations have loosened in recent years)—and that lowers your talent pool dramatically.
However, smaller accounting firms have lots of non-rich with decent net worths, in the mid-six figure range. Not quite millionaires, but more than enough to add real estate to the portfolio. And with it being a smaller company, the CPAs may have a more informal relationship with their clients.
Again, here a great presentation comes in super handy, especially because they may not be hardcore real estate folks. So they often want the numbers simplified.