Once you’ve made the decision to bring private investors in to finance your deals, your focus must shift to attracting people to your opportunity. The typical route taken at this point is a slow, steady beat of the “get secured returns at 10% per year” drum – which all to often gets heard by the wrong people in the wrong context.You might find yourself casting a wide net and coming up with an old boot and a rusty can. But, there’s a better way…

What if you could turn every person you meet into a marketing voice for you? What if each time you got a business card there was a possibility of real business to result from it (instead of tire tracks running over it in the parking lot). Well..

There is a way to turn non-investors (people who aren’t able, ready or willing to place funds with you) into great referral sources for private money. This is your hidden source of private money. It can and should be a goldmine for you. Why more real estate investors aren’t keenly focused on referral marketing for private money is completely beyond me. To broaden your reach, you must step outside of the real estate investment world and grab the attention of other business people and potential referral sources. Remember: there are many people out there who are being victimized by Wall Street and would benefit greatly by placing investment dollars with you!

Be careful not to get caught up in thinking the only source of private money is that which comes through direct response – e.g. your website, social networking, emails, letters, postcards, ads, newsletters, classifieds. If you broaden your scope, you can catch a lot more prospects. In fact, if you implement a direct and indirect approach to marketing your opportunity, the speed with which you get big time results will increase dramatically.

You can turn every person you meet into a referral source for private money. This requires you to be focused and purposed to get private funding this way and, of course, I’m assuming you have a good investment opportunity.

As I’ve written before, getting private money is a marketing process – not a financing process. It’s not the same thing as filling out bank paperwork and waiting like a good soldier. An unfortunate, but true, fact is that most people that have the money to invest with you do not know about your opportunity. And, if you don’t tell them, who will?

Here are some suggestions for ramping up this part of your private money marketing:

• Get plugged in – Networking centric groups, such as BNI (Business Networking International) or your local chamber of commerce (if you have a good one) are a 100% must-do. Why pass up the chance to present your opportunity to someone each week who has a vested interest in finding an investor for you? Why will they help you find investors? Because you will, in turn, reciprocate and send business to them. The power of these groups is tremendous.

• Partner up – Consider partnering with other real estate investors, often those with less experience, who may have private money sources. If they bring the money and you bring and manage the deal, everyone wins. You win, the new investor gets experience and the private investor wins. Be careful to lay out the ground work ahead of time, so the private investor isn’t perceived to be ’stolen’ by you. You may have to partner with real estate investor for use of their contacts money, but there are worse things, right? Think of the referrals you could get from a few deals like this and don’t forget that you’re making money on the deal as well as building your resume.

• Professionals - Leverage relationships with professionals, like your CPA or attorney. Show them your business plan and investment details and let them bring investors to you. If you truly have good deals and strong returns, a referral from a professional should be in the works.

If you think that you don’t have the time to tap into this hidden source of private money, guess again. In just a few hours spent per week you could have hundreds of thousands of dollars in private money referrals coming at you. When you have a good business model and a solid value proposition, economic principles dictate that money will be attracted to your door. All you have to do is open it.

Money Flows

Think of money like mercury in a dish – it is liquid and flows through the paths of least resistance. This is a simple economic principle – and a big part of why I believe any real estate investor can have private investors fund their deals. You’re simply obeying fundamental economics and applying it to real estate investing.

What Are You Offering?

Contrary to what you might think, “secured” returns -  such as those with private mortgages – are not 

always enough to entice private investors to your opportunity. Considering that many people still think real estate is “not good” based on all the scary national headlines, you might be facing an uphill battle convincing private investors that “secured” is all they need when your selling the investment to them – you may have to go a few steps further.

• Demonstrate a strong returns on investment – chances are you’ll have to offer something commensurate to alternative investments. If you’re buying foreclosure houses or commercial short sales, the returns generated should be very high – you can afford to pay a good return to a private investor and profit handsomely yourself.
  • As you present deals to private investors, consider showing them a strong margin of safety. Chances are you can buy for such a low price that even further adverse market conditions will likely not impede long terms gains.
  • Showing strong returns even in spite of rent or market price declines will connect the dots for the investor and warms up their hand to write you a check
• Real estate investing is still the most tax advantaged investments available. Fortunately, your private investors can benefit tremendously by placing funds in your private loans or private placements
  • Depreciation – allows your private investors to pay taxes on less money than what they received. This applies to private equity investments as opposed to loans, and the benefits are huge. With accelerated depreciation, you and your private investors can keep more of the money that your business makes
  • 1031 exchanges – allows you to roll the profits from one property into another of equal or great value and defer paying taxes on the gain upon sale (note that you must use a qualified intermediary for this)

High ROI and tax advantages are just two ways you can attract private investors to you real estate investments. In the future, I’ll discuss: inflation hedging, diversification and other techniques to help you attract investment capital.

Fundamentally, you should always keep at the top of your mind that you have something of tremendous value to offer. Even if you are raising your first million dollars, you are providing a great return on investment and long term appreciation of capital that creates wealth.