5 Steps To Getting Investors To Fund You...

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

I read an awesome article recently by Craig Haskell of ValueHoundAcademy.com about the process of getting your syndications funded by a pool of investors. I’ve been a fan of ValueHoundacademy.com for years because it provides timely and worthwhile training, coaching and networking.

I found the article interesting because Craig takes the backward approach to raising money.

"Conventional wisdom” and what most of us have been taught is that you find the deal first, and then once you have a great deal, the funding will follow…

He calls that approach “Fool’s Gold” for raising money.

The example that he uses:

Johnny spends a couple months sourcing the perfect deal. He finds a 50-unit value-add apartment building, selling for $2.5 million. Johnny will need to raise a total of $800,000 to close the deal.

With the property tied up under contract, Johnny has 90 days to close; 30-day for due diligence (DD) and 60 days to close thereafter.

As the Due Diligence period winds down without raising $800,000, he starts to realize that if he removes his contract contingencies without knowing how or where he's going to raise the money, he could lose his $50,000 earnest money deposit. Johnny is afraid that he'll run out of time and lose is money.

Instead, to avoid uncertainty, stress and risk of not closing because the equity could not be raised, Craig developed a 5-step process to follow BEFORE you find a deal to buy.

He prefers this approach because there’s no time limit when going through this process; no stress because you don't have enough time to pool investor funds.

Here’s His Simple 5 Step Process:

STEP 1: Pick Your Specialty

He says that you should NOT chase rabbits. A big mistake many real estate investors make is chasing multiple types of properties in markets scattered everywhere. That’s called chasing rabbits.

steps He recommends that you pick your specialty. Why? Because successful real estate syndicators specialize in a specific property type and market location.

You will need to decide your area of specialization. Pick a property type and market that you have some experience with and that you are passionate about.

STEP 2: Create Your Pitch Book

Next he says that you should create an information package about what you're doing. Basically you're going to create a 10-15 page pitch book on your investment strategy that talks about how you're going to make money for you and your investors.

The pitch book becomes your tool when speaking with investors about your investment strategy. Your pitch book clearly outlines how you're going to make money for them.

You'll find that your pitch book becomes the very core of your business. It's the backbone to your syndication business. It's the brand on who you are and your expertise. Your pitch book will become who you are and what you become known for.

This is great advice, because investors you approach are going to want to see a summary in writing. I developed my own when I did my first syndication several years ago, and it was critical to “closing” the investors and getting their signatures – and checks.

STEP 3: Create Your Potential Investor List

Now that you have a plan, he says it's time to start creating you potential investor list. These are people you know who might be potential investors. You are going to create a list of people who you are eventually going to speak with about your pitch book and your game plan.

Make a list of potential people who may have an interest in investing in real estate. The best and easiest place to start is friends and family. He suggests targeting these other places to find investors for your list:

Business Associates
Accountants and Financial Planners
Attorneys and Doctors
Property Owners

This list will only be your starting point. Make sure you ask people on your list if they know anyone else who might have an interest in investing in real estate.

STEP 4: Conduct Investor Meetings

meeting This step is where he says you’re going to meet with potential investors on your list. You're going to talk to them about your pitch book and your plan for managing the investment, and their money.

Your goal during these meetings is not to sell them anything, but to gain their interest in your game plan. You are trying to get them excited about the prospects of making a lot of money and making a difference in the world by investing in your game plan.

During these investor meetings, you are talking about your investment strategy; your game plan to make money. You are not talking about a specific deal. In the end, you are just trying to see if people on your list are interested in your strategy.

This is also great advice. People hate to be sold something. I realized that early on when I was looking for private investors. When I changed my approach to teasing them with what I was doing and specifically NOT asking them for money, a funny thing happened...

A bunch of people started offering me money.

STEP 5: Build Your Investor Database

In Step 5, he says that all of the investors who have an interest in your game plan go into a database that he calls a “YES” database. This is a special database that requires some management and oversight. These are your potential investors in the great deals you find, so you need to manage this database.

In this step, your goal is to stay in contact with your YES database members. Keep them excited about what you're doing. It might be a few months before you bring them a deal, so keep them engaged during that time period.

There are any number of ways to stay connected and keep your name in front of your database. But ultimately, you're going to create a drip campaign by sending your database information.

The Real Story to Raising Money Success

Again, he strongly recommends that you build your pool of investors before you find a deal using the 5 steps he developed.

This is simply because the 5-step process will allow you to build an army of interested investors so that when you find a deal, you have investors ready for your deal, which makes it a whole lot easier and quicker to get your deal funded and closed.

So to recap, Craig says that you should become an expert in a marketplace and product type, then create a pitch book built around a unique money making strategy, create a list of potential investors, go meet these investors and see if they are interested in your game plan. Build your database of interested investors, until you have close to 20 people, and then go find a property to buy.

A pretty simple and straightforward process I’d say. And it eliminates the “selling” that many investors dread when they’re looking for private investors. The cool thing about it is that you can put it in play even if you’re doing smaller deals and not looking to take down a multi-million dollar commercial property.