Multifamily Investing: 4-Part Formula to Raising Private Money

Posted on Apr 13 2016 - 10:00pm by Lance Edwards

Lance Edwards. President, First Cornerstone Group, LLC.

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. 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.

Keep in mind that all four of these need to be done simultaneously for the formula to work.

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. They have already shown some affinity, some familiarity, and some willingness to invest in real estate. They don’t need to be sold on the idea of real estate as an investment. 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 found someone who is predisposed and you have convinced him that you have a low risk transaction then the other human condition kicks in. The investor then wants to know how good a deal he is getting for the low risk investment. You have to design something that is high return, but doesn’t “give away the farm”.

The premise of this formula is that you are building an investment product. 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.