How Can I Make Passive Income
The 19 best ways to generate passive income in 2019
How Much Will The Legal Work Cost
Each fund is different, and each attorney is different, but you can expect to spend between $50,000 and $300,000 in legal costs to complete your fund, and often more.
One way to manage legal costs is to have a comprehensive fundraising strategy before hiring an attorney. The fundraising strategy should include:
What Is Real Estate Crowdfunding
Crowdfunding is a way to fund a project or venture by pooling small investments from a large group of investors. The idea is that when enough people make small investments, itâs possible to raise substantial amounts of money quickly. One of the most well-known crowdfunding sites is GoFundMe, a platform used to raise money for everything from creative projects to medical bills.
Real estate crowdfunding raises capital for real estate investments. When developers or real estate professionals find investment opportunities, they may not want to fund the entire investment themselves . Thus, they turn to crowdfunding to let individual investors help finance the project. The process enables investors to invest in real estate without owning, financing, or managing properties.
Real estate exposure without having to own, finance, or manage properties
Low minimum investment, so you can access assets that would be unaffordable otherwise
High profit potential through distributions and a lump-sum return at the end of the investment
Automatic investing on most platforms
Illiquid, so your money may be tied up for at least three to five years
Higher risk than other types of equity investments
High fees, depending on the platform and investment you choose
Some opportunities only for accredited investors
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Gamifying The Process Of Raising Capital For Real Estate
Hunter: When you can gamify that process, it makes you always listening all the time. Does that make sense? If you’re not gamifying it, you can check out easily and go, “This guy doesn’t know what he’s talking about. He’s boring, or whatever. He doesn’t apply to my business, et cetera.”
One way I found to kind of maximize that is to even gamify those moments, and this is like the ultimate X factor. If you find yourself thinking, I don’t invest in fix and flips, which is true, I don’t. If I’m going to a networking event and I start to meet someone and they explain, well, I do hard money loans. I do fix and flips, et cetera, and I loan to wholesalers or something like that.
It’s very easy for me to go, what do we all say? “Well, I got to go to the bathroom, I’ll see you around.” You walk around for several minutes and you don’t really do anything. What I like to do is listen and try to extract who I could contact this person with. Who can I connect this person with that’ll ensure that they have $2,000 a night? So what ends up happening, I’ll go, “Yes, I’m a wholesaler and I work in Orange County.”
How Can I Raise The Money
In addition to understanding which investors can participate in a fund, a sponsor should understand how those investors may be approached to invest. Depending on the structure of the fund, a sponsor may be allowed to market the fund publicly or may be limited in outreach to only investors that the sponsor already knows or that meet a certain set of standards. This question can be further complicated if the sponsor hires a professional to raise funds, as they must ensure that it holds proper licenses to raise private equity on behalf of a third party.
The sponsor will also need to think carefully about what the message to investors will be and how it will be delivered. Its important to balance the need to market and promote the fund with scrupulous honesty about what investors can expect. Many an investor lawsuit has started when expectations were not set appropriately, and an overzealous sales effort up front can be costly in the long run.
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The Advantage Of Attending Events
Hunter: It’s been a while since I’ve gotten to talk about the book in detail like this. I appreciate the opportunity to do so because I’m really proud of it. And I have a high standard for my kind of output, but what you’re talking about, it’s so powerful. There’s an interesting tie into a recent story that just happened.
But basically, I was going to networking events. During COVID, this has kind of slowed down, but it’s about to open up in a big way. My wife is in the event planning business. These things are coming back with a vengeance in the next coming months. I started going to events and I met someone at an event that was investing in and purchasing and operating ATM machines.
I quickly became very interested in it. There’s a lot of nuances of the business, which we don’t have to get into now. But it’s an asset class, which is depreciating. There’s a technology risk. The cash flow is very high. Usually it’s unleveraged, very predictable cash flow, just nuances there that I really liked. You don’t sell the asset at the end, so you’re not really dependent on market dynamics.
It’s all about cash flow, very interesting play. I was like, “Okay, forget real estate for a moment. Tell me about your network, your business. How’d you get into this, how’d you finance these? Who was involved in raising capital for these?” He said, “If you’re interested in these more niche kind of recession-resistant plays, you should meet this individual named Jeremy Roll.”
Vendors Contractors And Sub
Working with the right vendors and sub-contractors makes a big difference in cutting costs. Some subs may have higher pricing but will show up when they say they will. Others might charge less but fail to perform, costing more down the line as you fix mistakes and your project gets delayed.
Look into the history and capabilities of each sub-contractor you plan to work with before signing any contracts. Due diligence is important if you want to work with people who can get the job done right.
Dont skimp out on the cost of hiring essential experts. Unless you understand every building regulation in the area youre developing, you need expert advice from architects, engineers, and similar professionals to make sure youre doing things in the right way from the start.
Fixing these types of errors is costly and time-consuming, and there may be fines attached for non-compliance or negligence.
“For contractors, you need to do your research up front. Look for contractors that are licensed, insured, and who have a track record of getting work done on time. Be on the lookout for shoddy jobs in their past and see how many satisfied customers they have for similar projects.”
Ask about maximum price guarantees and get quotes from multiple trustworthy contractors. If possible, speak to other real estate developers in the area to ask about their costs for similar projects.
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Importance Of Real Estate Financing And Why You Should Consider It
Real estate financing is growing at a minimum of 30% CAGR. At this rate, the business is doubling and the profit is increasing every 2.5 years.
RERA and Aadhaar are bound to main-stream the business of real estate in India. This will further bring more organized real estate players into the market, thus allowing higher and safer businesses for home finance companies.
Greater the development of a country, lesser are the interest rates . The present time is therefore the best time to invest in real estate with loan offers of great profitability.
The net NPA levels are lesser in home finance companies as compared to the banking sector.
Due to the need and push for affordable housing the housing finance domain anticipates the highest growth potential followed by services, technology, and trading. It also guarantees fixed income, as investors are bound to get three times more of the sum than their 20-years loan from home finance.
Commercial realty has also emerged as a resilient segment and substantial traction is witnessed towards the Grade A office space. Positive investment growth is also anticipated in the leasing of coworking spaces.
Start With Your Own Cash
This might sound counter intuitive, but start by using your own cash. This will force you to really think hard about each decision and where each of your dollars is going. Youll quickly learn how to be proactive with your strategies and this will help you know how much funding youll need in the future.
Dont have enough cash to get started with a deal? Start saving.
Be frugal and save as much as you can. If real estate investing is truly your goal, you really should make this commitment. Lenders love to see newer investors with some skin in the gameit shows them youre truly serious and committed to your success.
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A High Demand For Excellence
Hunter: “The lower the interest rates are, the lower the cap rates are, but it’s only over a 12 month period. In the short term, there can be these divergences.” It’s like you went from not knowing about this topic to being obsessive on this topic, and with a high demand for excellence quickly.
Those are all the makings of a successful person. You can even tie that into a personal story where you can even show what’s on the table with your success not only for yourself but for others as well, how can I not help you out if I’m in a position to do so?
Darin: That’s a great point. I love that you said, inspire them because that’s it. This is going just like human nature. It’s like you need to just connect with somebody and inspire them. I agree with you and I want to add something to it. If he talks about interest rates and cap rates, you have to be authentic to yourself and you have to be you.
If that topic is not something that you’re passionate about or that part of the industry, he’s probably going to see through it even if you do all the research. So find something that is part of you that’s authentic and then go all in on that and connect with somebody that really loves that.
Hunter: Even before going into that type of relationship, I want to be very dialed into who that person really is. If I can see them and I working together for the next multiple decades to come. People always talk about getting mentors and you can be mentored by people that don’t know you directly.
Building The Momentum You Need In Raising Capital For Real Estate
Hunter: So now they’re trying to make you have $2,000 a night. But it’s even both of them and it’s even stronger because you already gave them the gift of that connection. So what happens after that is that the next time you walk in that networking event, you are famous.
The new people that don’t quite know you yet, they recognize that you’re the famous guy that’s so good at knowing everybody. Then the momentum just starts to grow. It’s exactly how I built my career going to networking events.
Darin: You said something there that I didn’t even catch from the book. It’s not only that you get reciprocity from the first guy, but you took him and introduced him to somebody else. Now you have two people that want to give back to you. That’s massive. You mentioned meeting somebody, and I remember reading in the book that you flew into town to meet him.
Somebody said, “Hey, you got to meet this guy,” and you flew into town and went and met him. That kind of changed your life. Can you share that story, because I think that some people, they don’t see the value in meeting somebody that can change their life.
Hunter: Its funny you just said that out loud, isn’t it?
Darin: Yes. Or they don’t see the value in themselves. They’re not where they think they need to be. Whatever the case may be, they’re basically limiting beliefs. Tell your story because I think it’s key. Everybody is just one person away from really opening the door.
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Become Good At The Details
Accurate documentation is critical in real estate if you want a thriving business. Record all the details of the purchase, the rehab, and the sale. Dont undervalue the power of a simple spreadsheet and a camera or a camcorder. Documenting every detail will give you a reference point for future projects and will serve as the foundation for establishing yourself as a safe investment to all of the private money lenders out there.
Promote On Investor Websites
Crowdstreet is one of the many internet platforms that allow for people to both invest in existing real estate deals and to raise money for their real estate investing.
Instead of pulling money from different people and places, Crowdstreet allows you to list your deal.
Their vast network of investors can see your project and choose to partner with you. Through the Crowdstreet platform, you can raise your capital while managing the entire project.
Crowdstreet’s Marketplace provides investors a simple, elegant way to search for individual deals and managed funds.
They also have a comprehensive resource center with guides, reports and continuing education.
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An Opportunity In The Atm Business
Hunter: But we’re chugging along at 90% occupied, we’re just going to keep chugging along unless we’re forced to refinance or sell at that time. For whatever reason, which can happen only with that kind of debt. The other thing though is that we’re not completely blinders on when it comes to our investment thesis. It’s just that that’s the thesis and the percentages are tweaked.
Recently we have found an opportunity in the ATM business. I am finding it very hard to compete with this type of opportunity. And so the ATM percentage of my personal portfolio as well as the opportunities we’ve made available recently is overweight to ATMs. I think in two years, ATM play will probably be gone because there’s no way it’s going to continue the way it is. And we’re going to take advantage of it.
Darin: That’s the value of going back to the question before in terms of risks that an investor would go around you. But if you’re continually out spending your time investing in opportunities, introducing new opportunities that they see valuable, they know if they go around and they’ve just burned that relationship and they’re going to miss those other opportunities.
A Private Money Lender
You dont have to go through a bank or established lender to finance your project. Getting a loan from a friend, family member, colleague, or a cash-flush acquaintance or business professional is also an option. In most cases, youll need to pay interest or promise the private lender some sort of return on their investment.
The upside? Theres no red tape or difficult qualifying process, and you can probably get your cash pretty fast. Just make sure its not your long-term solution. A private lender usually wants their cash back within a few years.
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Up To $20 Million In Assets
If youve already purchased one or more real estate project and are seeing more opportunities than you can finance, then now is the time to start building your investor network so you can finance all your next deals quicker.
Youve already got some momentum now start finding and educating prospects about what youre doing so you can build an email list of people to pitch to when youre ready to raise money for your next deal.This is what we build for private clients all the time its called the Investor Acquisition System and you can access the entire program right here so you can find prospects, and convert them into being deep pocketed, repeat investors in your deals.
What Kind Of Money Can Be Invested
Another concern is the type of money that a fund or fund sponsor can accept. There are a variety of restrictions in this area, but the two most common are investments from retirement accounts and investments from foreign accounts. Each of these areas creates downstream issues regarding the ways in which a sponsor can invest, manage, and report results to investors. Therefore, having a full understanding of the type of investor funds that can be part of the fund should be a key element of the marketing strategy. Speak with your attorney to learn how these choices may complicate or direct your efforts, both before and after the money has been raised.
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Tips For Raising Private Real Estate Capital
The best advice for raising private capital in real estate will vary depending on who you ask. This is because over time, investors find the way of doing things that work best for their real estate businesses. However, this is not helpful to newbies. What I can say is that it takes time to develop a surefire system for raising private capital. In the meantime,here are some tips to help you get started:
Use Your Own Money First: Before you start fundraising a new project, assess how much capital of your own you can rely on. Not only will this help you frame the budget for the project, but it will also lower the amount of cash you are paying interest on should you find a private lender. To increase your personal capital, consider redoing your monthly budget and reducing expenses for a while you may even be eligible for a home equity loan.
Attention To Detail: The details included in your portfolio are going to make or break your pitch to private money lenders. Ensure you have an accurate purchase price, property value, rehab cost, and rental value wherever it applies to you. If this is your first investment deal, make sure the figures and estimates in your deal analyzer are as accurate as possible. Strong attention to detail could mean the difference between choosing a potential investment and securing enough financing.