4 Fatal Mistakes When Looking for Private Money

Private money is the lifeblood of real estate investing right now. Most conventional lenders are out of the market due to the economy, and many former Private Investors are on the sidelines either because they took a hit during the down-turn or because of “Bernie Madoff Syndrome”.

Either way, money is harder to come by than it was just 24 months ago.

So that has gotten many real estate investors very interested in raising private money.

From where I sit though, I see people making a lot of the same mistakes that I did when I was getting started looking for private money. The problem is, these mistakes don’t just prevent you from getting private money. They will also poison a lot of wells, making so you can likely never approach some people ever again. Ask me how I know! I scared away at least 8 people before I figured out how to raise private money. Since then though I’ve raised over $1.6 million.

So I decided to write a series of posts to identify and discuss the these fatal mistakes. I’ll kick off the series with the two biggest mistakes . . . .

Private Money Mistake #1: Looking for the Silver Bullet
The #1 mistake that I see is investors looking for the magic shortcut in the form of a seminar, a home study course, or a coaching program that will have private money raining down upon them within hours of their buying it.

I should know. I tried pretty much all of them. Or at least every short cut that I could think of. I spam-bombed Craigslist. I held “Investor Lunches”, I hired a copywriter and did some very expensive direct mail to a highly targeted list. And I even did a Private Placement Memorandum with a partner.

Guess what I discovered? None of them worked.

There aren’t any shortcuts. There isn’t a magic script, a magic powerpoint, or a magic list that’s going to smooth your way to getting private money. It’s just not going to happen. You can spend hundreds or thousands of dollars on seminars, courses, and lists, but when it comes down to it getting private money is about one thing and one thing only – building relationships.

So if private money is what you’re after, then the key is figuring out how to get to know and build relationships with potential private investors.

Private Money Mistake #2: Cold Contacts

Just about every private investor that I know focuses on casting their net wide and trying to snag people they don’t know. This is a huge mistake, because people that don’t know you are the hardest sell. They don’t know you. They don’t know your family or your reputation. And they don’t know your business.

They literally know nothing about you except that you’re looking for money. So why, exactly, are you expecting them to be receptive to your request? They’re not! So it’s a waste of time to target people you don’t know.

So what’s the solution? Honestly? It’s to target people that you already know.

Sounds simple doesn’t it? So then why don’t we do that? From my experience, real estate investors have trouble approaching people they know for two reasons.

The first is fear. It’s hard to approach people we know, and we’re intimidated by some of them as well. Family and friends often knows us too well. So it’s difficult.

But I’ve found that the fear and difficulty of doing this is based more on their familiarity with our business than anything else. I know from experience that it’s difficult to raise the subject of my business to the people that I know. (Hey – did you know that I’m in real estate?) Because it’s often difficult to broach the subject in a way that’s not awkward.

But what if people already knew you were in real estate? They’d ask you about it – what you’re doing, how you’re doing it – because most people with day jobs are fascinated with people that are doing something different. That’s how it worked for me. I worked so hard at making sure everyone in my circle knew about my real estate that now when I’m around the neighborhood or at one of my son’s hockey practices they ask me about my real estate business first and virtually never ask about my day job.

That opens the door for me to talk about my business. The cool thing about this approach is that eventually almost everyone gets around to asking about how I fund my deals. And when I tell them about my private investors, many of them ask how it works and how they can get involved.

In fact, every private investor that I have now offered me their money. I didn’t have to ask a single person for money.

That’s the power of targeting people you know.

 

Next:  Fatal Mistakes #3 and #4

Dennis is an active real estate investor based in Metro Detroit.

In addition to his day job, at present he holds a portfolio of rental houses and he's an active wholesaler who has closed deals in real estate markets throughout the country.

He's also a published author of a book on rental house investing called "How to Buy Your First Set and Forget Rental House", and has trained over 1000 new real estate investors on how to get started with real estate.

You can reach him directly at dennis at dennisfassett dot com

Please note: I reserve the right to delete comments that are offensive or off-topic.

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