How To Find Investors For Real Estate Projects? (Get them to invest)
Real Estate is a high ticket business and not every individual investor has enough provisions to feed this blue whale. In one of our private Facebook communities, there is one such investor who aspires to develop her small owned commercial lot of land. But she lacks the capital and is now on the road to find investors for her real estate project.
Is the lack of capital hindering your way to scale in real estate?
You might be one such person who is either lacking capital or experience and now wondering how to find investors for real estate projects. Then this is the article for you. In this article, you can learn everything from finding the right investors for your real estate project and secure that much-needed investment. Here is where you should start from.
Classification of Real Estate Investment Funding
The first and important thing for you to understand is the type of investment, real estate investors provide to individuals who are looking for an investment in their real estate project. You will find an investor for your real estate deal but what kind of investment are you looking for exactly?
A real estate investor invests in your project in two ways.
- Debt Based Investment
A real estate investor provides you funds in the form of debt. You receive the funds for a certain time period and are required to pay interest on the money you receive in the form of debt.
The Real Estate Investor who is making a debt-based investment is more of originating a loan to you. You often see such types of investments by the banks that fund your real estate project in the form of a loan by providing a mortgage.
2. Equity-Based Investment
In an equity-based investment, an investor funds your deal and in lieu obtains a share in your business. When you receive profits, the investor also has his share in the profits.
Suppose you have an investor to invest in your rehabbing project. You bought an upper fixer. The investor provides you funds to make the repairs and then you sell it for a profit. In this case, when you sell the property after rehabbing, the investor will also have a share in your profit depending upon your arrangement.
Those who look for an investor to invest in a real estate project are mostly looking for an Equity-Based Investment. With Equity-based investment, you are getting more of a partner other than just money in your project.
Which Investors Fund Your Real Estate Project?
There are different types of investors in the market who invest in a certain category of investment vehicle. In that sense, not every investor will fund you for your real estate deal. You are required to network with the right kind of investor.
1. Institutional Investors
Institutional investors are basically the big institutions including the banks, pension funds, and mutual funds. These investors mostly have their hands on millions of dollars and hence their investment affinity mainly inclined towards large projects and big firms.
And being an individual, it is not at all possible to secure an investment from them. Though you can have a bank invest in your project by originating a loan for you. It will completely be a debt-based investment by the bank and no equity at all.
2. Private Investors
Private Investors include venture capitalists, angel investors, and personal investors. These types of investors invest in small companies and fund independent individuals to help scale their businesses. Most private investors invest their dollars buying some stake in the business and making profits out of it.
In the world of real estate, private investors mainly invest in Commercial properties, residential buy and hold properties, rehab projects, and wholesaling real estate businesses. When you search for investors for real estate projects, you will want to network with private investors only.
- Venture Capitalists
Venture Capitalists are mainly a company or maybe an individual who has a pool of money from different investors to invest in deals. VCs invest with other people`s money, so have a considerable big-money pool. You can expect to pitch about your investment if you are looking for above $1 million investments. VCs hardly invest in small projects.
- Angel Investors
Angel Investors are high net worth individuals or accredited investors who invest their own dollars in the deal. These types of investors mostly like to work with individuals who have established something in the business on their own and are now looking for more investment to scale the business.
Expect to secure investment from an angel investor if you already have years of experience in real estate investment on your hand.
- Individual Investors
Individual Investors are individuals who have some extra liquid funds available with them to invest somewhere. Or for that matter, individuals who are looking for better and safe returns compared to their existing investments. These investors can be someone you are related with or know personally somehow.
For instance, an individual investor can be your grandparent or your father who has retired and has funds in his 401 K. His 401 k can be providing him anywhere between 5%-8% returns. If you can provide better returns than what he is getting with 401K. You can expect him to invest in your real estate deal.
Where To Find Investors For Real Estate Projects?
The more you network with the right people, the faster your net worth will grow. Identify where your target investors will likely hang out and then you can find the investors for your real estate projects.
1. Your Inner Network
This one is the easiest of all. Think, you may already have an individual in your network who is in some way associated with real estate. Such individuals can be of great help to you. If not for the investment, they can help you land in the right place. Most often we have such individuals in our group but hardly they cross our minds. So, first of all, think if you have any such person in your network already.
The second person who you can think of investing in your real estate project can be someone from your family. Try talking to them and see if they are interested in partnering with you. Maybe your dad, your brother, your sister, or your cousin?
2. Social Media
Social media has really made it easy for people to connect with other people. And if you can harness the power of social media in the right way. You can easily connect with individuals who can partner or invest in your real estate deal. It is also quite easy to find such groups and communities of real estate investors and landlords on social media.
I`m also a part of some of these groups and communities. Bigger Pockets, Spark Rental are among such communities where you can find an investor to fund your real estate deal. Active Rain is also one such real estate investor website to find and network with like minded investors around you.
3. Crowdfunding Websites
If you don`t know about crowdfunding already. Then crowdfunding is a way of receiving an investment from various individual investors on a crowdfunding platform. These crowdfunding platforms act as a marketplace to match investors with those who are looking for investors. However, crowdfunding platforms do much more than just a marketplace from performing all kinds of due diligence on the sponsors and projects requiring investment.
Crowdfunding platforms are very particular on which projects and sponsors they accept. That said, you can always try your chance to secure investment on a crowdfunding platform. Some of the crowdfunding platforms that you can check include
- Crowd Street (Markets only Commercial Real Estate Projects)
- ROI`s List (User Discretion Advised with this platform. Not Enough Reviews available for this platform)
4. REIA Clubs
REIA Clubs are various locally and nationally formed associations throughout the US. The members of these associations gather around and discuss what all is happening in the real estate world. These REI meetings are a great place to network with a real estate investor.
You can easily search for such REIA club meetings happening nearby by searching events online on google, or by looking up at meetup.com.
5. Attending Auctions
Attending auctions can also be a great way to find investors for your real estate projects. In real estate auctions, majorly you will find investors who are actively looking for investing in real estate.
And if you want to find investors for your real estate projects, simply talk to as many investors as you can in the auction. Maybe you meet your next investor there.
6. Real Estate Agents
Real Estate Agents have more exposure in the field of real estate and have a lot of potential investor clients. A local real estate agent in your area can certainly help you identify one such potential investor for your real estate project.
How to Pitch Your Deal To A Real Estate Investor?
Getting an investor to invest in your deal is not a cakewalk. You need to put together a rock solid plan and a worthwhile deal in front of an investor. First structure the deal properly and then put together a solid proposal in front of the investor.
Structuring Your Real Estate Deal For An Investor
Be careful when you structure your real estate deal.
- Be reasonable with the returns you project. An Investor is more interested in safer deals that can give reasonable market level returns.
- Always remember to stress test your project returns by factoring all the possible factors and market conditions. The investor will likely be drilling down the worthiness of your deal by examining all factors in the profit equation. And, if you are calculating the returns, simply following a straight line can backfire. You must have an exit strategy for an investor if your project doesn’t take the expected route.
- Ensure the deal you will be making with the investor will be profitable for both the parties.
What to Put in Your Real Estate Investment Proposal?
The span of human attention is very small. Your proposal should be on point with only necessary details. You need to grab the investor`s attention quickly. Generally, the proposals which take more than 3 minutes to grab the attention are eventually turned down.
Ensure you include these important details in your proposal.
- Description of the Real Estate Deal
- Objective of the Project
- Investment Required
- Type of Investment (Equity/Debt)
- Estimated Return on the Investment
- How long will it take to return the invested money? (If for Rehab and wholesaling Projects or is it a buy and hold project)
- Your Experience/Expertise in the Field
“Expect to open a hallway of opportunities for yourself if your first partnership deal goes well for both of you. You can exponentially grow your portfolio by partnering with the right investor.”
Partnering with a Real Estate Investor
Do you know, only 20% of the partnerships formed in a business reap fruitful results. The remaining 80% of partnerships end up in the flames. You certainly don’t want your partnership to end with a tragic tale. So, it is important you keep a note of certain things while forming a partnership with a real estate investor.
1. Have an Objective Oriented Partnership
Avoid Partnership with someone with whom you think work will be fun and games. Both partners should be serious and oriented towards the objective of the deal. Most times when you partner with someone you know, you can tend to take things for granted. Avoid this at all costs or refrain yourself from such partnerships.
When you form a partnership, ensure both you and your partner are on the same page. If both of you have something on the line in the deal, you tend to work more seriously for the results.
2. Form an LLC
It becomes imperative to form an LLC when you partner with a real estate investor. Forming an LLC does not cost much. And it can help you to limit your personal liability in a partnership that is in favor of both parties.
3. Sign an Operating Agreement
Put pen to paper. If you are relying solely on a handshake agreement, expect the partnership to bring friction and eventually end at some point. It is important both parties sign an operating agreement highlighting each partner`s roles, rights, duties, and responsibilities. An Operative Agreement must include these clauses.
- Capital Contribution
- Salaries/ Profits
- Death/ Disability
The Bottom Line
Don`t let the lack of capital come in your way of scaling your real estate business. If you have the right deal on the table, you can always find a real estate investor to fund your project. Even people when they have no money find a way to invest in real estate. The only quest is finding the right investment property.
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