Wednesday, December 26, 2012

How to Raise Private Money for Buying Multifamily Properties

When it comes to raising private money for your multifamily property deals, you are only limited by the scope of your imagination and creativity. The amazing thing is that there is a simple, four-part formula that you can use to raise private money for apartments. Most people, however, don't know about this formula much less that there are four parts and what those four parts are. Let us take a look at each of these four parts.

Remember that all four of these parts need to happen simultaneously for the formula to perform optimally.

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. The only thing you have to sell them on is you and your deal.

Control : Capital preservation is the first thing that comes into people's minds before they will release their money. 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 craft an investment for them that yields a high return but doesn't give away too much of your profits.

The basis of this private money formula is that you are crafting a financial product thru apartment investing. The more you can package up your deal, and quickly and clearly articulate its merits makes all of the difference in the world in raising private monies. 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.

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