“Need partners for real estate project – 25% ROI”

“Earn 10% secured return on your money”

Are you guilty of this yourself? If so, how are the results?

Do you get a lot of tire kickers? Spammers? Loan sharks?

I can’t think of many worse ways to get private money than to randomly post your deal online somewhere. Most of the websites that claim to match investors with projects are a waste of time. In theory they are good, but practically they won’t get it done for you in most cases (there are exceptions, but rare from what I’ve heard through many sources for REI private placements for SFH, multi-family, etc).

Why is it not a good idea to post your projects online and hope and pray for a response?

Reason #1: Shouting into the wind. You and an infinite number of other anonymous internet voices are all screaming out from the 1′s and 0′s of the matrix with a money making opportunity. What about that African fellow who wants to move his deceased father’s fortune into your bank account and let you take a small fee? Yep, all of those yahoo’s and knuckleheads are putting forth their message in the same mediums and venues that you are. Why would you want to put yourself in the same category as them in any prospective investors mind?  Successful marketing, no matter for widgets or private money, is about standing out not fitting in.

Reason #2: You are being ‘needy‘. Need never begets private money. People only want to invest with those that don’t need their money. Would you? You must always strive to create demand for your real estate investment opportunity. Attract people to you. Remember: people do NOT like to be sold – but they do like to BUY.

Reason #3: Securities laws. When you post your investment opportunity to the general public in this way, you can catch the attention of securities regulators. Technically, saying “earn 10% secured returns on real estate” in an online forum could be considered a ‘general solicitation’ and put you in violation of securities laws unless you have a registered security.

And, perhaps the most important reason you shouldn’t resort to random deal postings:

You can and should get the money on your terms.

If you post your deal online somewhere or with a deal exchange gateway of some kind, you are putting the weight of the deal in the other person’s (potential investor) favor.

When somebody comes to me for a hard money loan, I get to dictate the terms (which are quite onerous).

When somebody comes to me and wants to invest money with me in my real estate private placement, I have much more control of setting the terms of the deal.

Conversely, if I got to a bank and ask for their money, then I have to take whatever terms they’re going to give me. The same holds true for posting in a deal exchange type program: you post your deal and then you accept the investors terms. Less than optimal most of the time.

While I don’t inherently have anything against these types of deal exchanges, I do want you to have the most success in the least time raising the money you need. In the long run and the short run, it doesn’t make much sense to raise private money and then not make any profit on the deal. You are the investor, the creator and the deal originator and YOU deserve to make your money too.

Take this advice: the more you ‘need’ private money, the less you get. The less you ‘need’ private money, the more you get.

You’ve established a strong and compelling need for private investors. You’re considering setting up a limited liability company (LLC) or a limited partnership (LP) to bring your private investors in.

One question now becomes…

How to attract the private money investors to you?

You need to drum up some serious cash and you need to go beyond your existing base of family, friends and associates (where some of those sweet securities registration exemptions exist). What to do?

In this situation, real estate investors hungry  for private money will consider advertising their opportunity to perhaps the broad general public (not usually a good idea) or a targeted group (a better idea). They might take out a place ad in a local newspaper or start running internet ads to drive traffic to their website. Sounds good on the surface, except…You’re probably in violation of a bunch of securities laws. Those of you that have dipped your toe in this water before know what I’m talking about. For those real estate investors that haven’t, here is what it boils down to:

You are generally prohibited from advertising your investment opportunity (your ‘security’) by SEC rules and Blue Sky Laws.

Bummer, huh?

Well, not so fast. You are allowed to advertise your security under certain exemption rules (such as with a Regulation A offering, but the guidelines are pretty tight) and you can advertise your security if you have gone through the registration process.

Ah…a chink in the armor. You can advertise, but…

Advertising for private money to people you don’t know or have a relationship with is called a ‘general solicitation’ by the SEC and it can land you in a world of hurt if you don’t do it the right way. The laws for what is allowed for advertising can be very confusing, and I don’t want to get into all the legalese here. Suffice to say: when you advertise for private money, your ducks need to be in a row with both Federal SEC and your state securities regulator.

Wait…Hold on…back up the truck…

“Adam, what exactly constitutes an ‘advertisement’ for private money?

Now, if you’ll allow me to punt that question over to your securities lawyer, they will be able to give you a much more specific answer to your particular situation. Here is what I have learned over the years: it has been told to me by various securities attorneys that an advertisement can be construed as any medium used to reach people to attract them to your opportunity. This means: direct mailing, Google Adwords, landing pages, classified ads, place ads, billboards, online video and the like. Basically, an advertisement can range from simple lead generation pieces to targeted direct response promotions.

Now that we know what an advertisement is, how do you know if it’s the right time for you to start thinking about doing it to raise private money?

Consider first what you want to accomplish. It ultimately depends on how much capital you want to raise and the time frame in which you need to do it. For me, I like to start raising money from private investors while operating under SEC registration exemptions. Regulation D exemptions (Sections 504, 505 and 506) are the ones I operate under the most. Learn more about how I generate private money for my business HERE.

Advertising could be the route for you to take if you need to raise a bunch of money from investors in multiple states and with different investing backgrounds (e.g. accredited, non-accredited, sophisticated). If big capital raises are on my horizon, advertising enters the picture and my securities attorney gets a call. Being proactive and planning are very important here. No need to set yourself up to scramble around trying to un-tangle the web of securities laws when you’re in the heat of battle (e.g. negotiating on deals, working with investors, moving money).

One thing you should absolutely not do is run out and put ads on craigslist.org or google.com or yahoo.com and scream “10% secured loans” at the top of your lungs. This is a surefire way to catch some unwanted attention from regulators. It’s also a very tired and less than optimal marketing strategy.

Bottom line is this: you can and should advertise for private money if you are raising enough capital so that it makes sense to go through the SEC registration or securities exemption hoop jumping that allows advertising. You must always be conscious of having the proper marketing campaign set up. Both of these qualifications will mean that you have to sink some money up front, in terms of filing fees and billable hours to your securities attorney. I see this as an “investment” instead of an “expense”, though and I think you should as well.

I think completely ruling out advertising your securities offering to potential private money investors can be short-sighted, especially if you want to raise $5 million or $10 million in capital or more. The more capital you are rasing, either in the form of private mortgage loans from lenders or private money equity investments, the more advertising starts to make sense. When you get to this level, you can have your offering fees and expenses paid for by the proceeds of the offering (of course, there are strict disclosure guidelines on this).

One thing I firmly believe is that you should not let the SEC securities laws red tape of Blue Sky Laws hinder your efforts for getting private money. We have rules in all aspects of what we do in real estate (property use laws, zoning, etc.). Securities laws for raising private money are just one component of what we have to deal with do generate huge wealth using other people’s money. It’s well worth the price of admission when you close on that $10 million condo high-rise or that $3.5 million mobile home park that will cash flow $350,000 per year for you and set your life on easy street.

Provided you take the necessary time and do it the right way, advertising for private money may be for you.