“I’m going to keep my money in CD’s…”

“You’ve never done this before?! Ummm…”

“My lawyer says this isn’t a good idea…”

If you’ve ever heard a prospective investor say one of those things to you, then this is one of the most important messages you’ll ever read.

Here’s why:

I’m going to share some common (and blatant) mistakes that real estate investors make when raising private money. Once you know these pitfalls, you’ll have 80% of the game won.

Mistake #1:Waiting until you have a property under contract to talk to private investors

Mistake #2:Having marketing materials that talk all about your company and do not focus on benefits for the investor

Mistake #3:Not listening at least 5 times as much as you talk when you are communicating with potential investors

Mistake #4: Not asking enough questions of your private lenders

Mistake #5: Pursuing somebody to lend their only $50,000 to you

Mistake #6: Not getting a written commitment from you lender once they say ‘yes’

Mistake #7: Poor (or zero) follow up with potential lenders after points of contact

Mistake #8: Offering terms that seem “too good to be true”

Mistake #9: Not building unshakable credibility

Mistake #10: Not covering your behind from a legal standpoint

Mistake #11: Using a ‘broadcast’ marketing strategy

Mistake #12: Using a one-dimensional marketing approach

Mistake #13: No flexibility in your deal structuring

Mistake #14: Bad mouthing the stock market as an investment to your investor’s face

Mistake #15: Improper or lack of positioning yourself/business to private investors

Mistake #16: Making sure the lender thinks the only benefits to investing with you are rate of return

Mistake #17: Sending a direct marketing campaign to an untested list

Mistake #18: Poorly designed marketing materials/sales letters/website

Mistake #19: Being too aggressive/needy in pursuing a potential private lender

Mistake #20: Discounting the value of your own sphere of contacts in developing potential private lenders

Mistake #21: Trying to use one-step versus multi-step marketing

Mistake #22: Not knowing which problem you are solving for prospective private lenders

Mistake #23: Not providing enough of a value proposition to those lenders who are on the fence

Mistake #24:Being unprepared for a presentation to private lenders

Mistake #25: Not knowing the in’s and out’s of self-directed IRA investing

Mistake #26: Not knowing the basic tax impacts of various types of private money investments

Mistake #27: Eliminating your profits on deals by paying all of it to private lenders b/c you gave away the farm

Mistake #28: Not knowing basics of securities laws

Mistake #29: Allowing the potential lenders attorney to kill your deal at the 11th hour

Mistake #30: Not educating yourself on new changes in tax/real estate/investment/retirement laws so you can exploit to your benefit

By all means this is not a comprehensive list, either!

In coming days and weeks I will be going through each of these one by one so that you can better arm yourself for raising capital. A wise man once said: “just tell me where I’m going to die….and I won’t go there!”

-Happy Investing

Who is Private Money Public Enemy #1

With all of our connectedness in the world today (Facebook, Twitter, etc.) it’s easy to fall into the “everybody’s my friend” trap.

Unfortunately, this is not true. In business, not everybody is your friend.

The “no-brainerness” of this should be obvious, but is lost on many. For instance, consider raising private money. Everybody is your friend when you are raising capital, right?

First of all, before we get too far in, let me say that you must always treat everyone as though they could be either A: an investor with you or B: a referral source for private money.

With that being said it helps if you know who your biggest adversary will be when raising private money. This person is a formidable opponent. Usually they have a lot of marketing dollars and brand power behind them.  Sometimes it can feel like a David vs. Goliath battle (never forget who won that fight by the way). But, if you underestimate or fail to account for this opponent, you’ll cost yourself a great deal of private money.

So, who am I talking about here? Who is this great ‘Public Enemy’ number 1? It is…financial planners or investment advisors.

Ouch.

Did I  hurt someone’s feelings?

Well, I probably offended every financial advisor out there. Oh well. Can’t make everyone happy.

Public Enemy

Public Enemy was a ground breaking hip-hop group from the late 1980′s and early 1990′s. Led by front men Chuck D and Flavor Flav…ooops…you didn’t want to know about those guys did you?

Back to regular programming…

Financial advisors are your public enemy number 1 when raising private money because you are both pursuing the same thing.

It’s kind of like two guys that are going after the same girl for a date. Only one of them is going to win. While the guys  may be cordial with each other, it’s pretty hard for them to be friends. All is fair in love & war.

When it comes to private money, you are competing for the same investment dollars the financial advisor is. The private investor has a choice about where they allocate their money. The Ameriprise or Merrill Lynch representative certainly has a home for that money – and all of it. You’ve got to stand your ground to get a piece of the pie.

I’ve had financial advisors purposely try to sabotage deals where I had private investors pulling money out to invest with me via a self-directed IRA. It wasn’t pretty. These people are largely brainwashed into thinking that mutual funds and insurance products are the only investments available on earth. They walk the corporate line. They realized all of their compensation based in some form on bringing client money in the door.

Keep in mind also that most financial advisors work out of large firms that have big marketing budgets. This is why it’s so important that you have a unique selling proposition for your investment opportunity. One thing that always works well for me is to remind my private investors about the incentives the financial advisor has.

The financial establishment makes money no matter what. Market goes up; they make money. Market goes down; they make money. I guess it’s nice work if you can get into that sort of thing. But anyway, you – as a real estate investor – are going to make money only if the project is profitable. That’s a 180 degree opposite and well-aligned incentive. You and your investor win/win. Not “heads I win, tails you lose.”

Please just don’t make the mistake in thinking that your private money investor’s financial advisor is going to be excited about them pulling $250,000 out of their firm to invest with you. They’ll probably be trying to find a doll and stick pins in it to derail your deal with some kind of weird voodoo (after all, I think that’s how those guys pick their stocks). Luckily, voodoo doesn’t work on real estate investors like you!

Tough questions from private money investors could be:

• “How do I know this will work?”
• “What if you can’t sell the property?”
• “What if the property burns down?”

There are many other questions and potential objections the investor could have to placing funds into your real estate investment deal. I will save the ink for now.

So, why is this a good thing?

Sales 101.

Sales 101 gets down to the very basics of facilitating a transaction. And, one of the basics in getting the investor to

write the check is to answer or pull out of them every possible reason why they won’t invest money into your deal(s). If you try to get the money without having answered their fundamental questions and objections, you’re success rate will be sub-par (at best). Don’t short circuit the process.

The first step to doing this is to preempt objections by answering them in your marketing pieces and your presentation. Major points should be covered and if the investor continues to step forward then they’ve effectively gone through a good qualifying mechanism. Once they’ve gone through the qualifying mechanism (hit your website, received your email,filled out a questionnaire, called you once or twice) the fundamental questions have been answered, the prospect is interested and ready to move ahead.

If you don’t hear any questions or objections along the way, assume that the prospect is not interested. Something didn’t hit home with them.

It can be challenging sometimes when sitting in front of an investor or group of people who have the potential to place hundreds of thousands or millions of dollars into your business and be faced with tough questions. But the same rationale holds. If they are asking questions, it means they are interested and have not dismissed your proposal in their mind.

Think about it this way: the last time you made a bigger ticket purchase (maybe a TV or a car) did you ask lots of questions? I’ll bet you did. You wanted to get all of your facts right before parting with thousands of dollars. Can you imagine yourself just walking into a Best Buy and slapping your credit card down on the counter and saying “gimme one of those!”? Probably not. You asked questions about your pending purchase and when you received satisfactory answers to those questions you moved up one rung on the buyer scale. The same holds true for private money investors.

The more questions you get, the more interested the prospect is. I’m assuming, of course, that the investor has signaled themselves as not being a ‘tire kicker’. Tire kickers will ask all kinds of questions with no intention (or ability, probably) to place any amount of money with you. If you’re marketing your opportunity correctly, people should quickly flock to you that are ready, willing and able to place funds.

The tougher the question you get from the investor, the more interested they are. By asking you contingency questions, such as “what happens if the house burns down,” they are projecting the investment with you in the theater of their mind. Once the movie plays for them and it results in a happy ending, even in spite of some perceived adversity, the money is sure to follow.

Learn to take questions head-on. The less you beat around the bush, the less reasons the investor has to mistrust you. Trust is building block one in your pipeline of private money – so construct carefully.