You know what I mean.

You go to your bank and you need a statement from 7 months back and they want to charge you $10…for printing out a sheet of paper. Or, you get charged fees for checking your bags on an airline or they charge you $10 for lunch on the plane, etc.

I was just at Panera this morning and they charged me $1.20 to get cream cheese with my bagel. $1.20 for cream cheese!

This fee pile-on bull**** is really getting on my nerves. It’s like these companies hire a consulting firm or a bunch of MBAs that see clear to boost revenue by 5% this quarter by creating a heap of ill-will from all of their customers. It’s just plain dumb. Just roll everything into one easy price. But, alas, that sort of simple and common sense thinking doesn’t crank up the billable hours for the consulting firms.

But I can’t shake the though of my bagel; it should have been $1.49 with cream cheese and they could have just rationed the cream cheese a little more.  The worst car salesman is the one that tells the customer the total price of the car and add-on’s ($20,000 for the care, $1,500 for the sunroof, etc.), versus the successful car salesman that tells people the monthly payment amount and “for just $5 more per month you could have a sun-roof and power windows…”

Ok, anyway, I was going somewhere with this as it applies to raising private money.

If you aren’t already aware, the financial services industry is perhaps the biggest perpetrator of ‘nickel & diming’ customers. You would be absolutely floored at the fees that are piled onto everything. Consider the advertising costs of mutual funds (12b-1 fees) – it’s pretty ridiculous that the investors in a mutual fund have to pay for the managers of the fund to attract more capital, which enriches the managers as they get paid a % of the invested assets of the fund. Not to mention that the larger a mutual fund gets, the more difficult it is for the fund to achieve higher returns (more capital = more places to put it, which causes return inhibiting limitations).

And that’s not even the beginning of it all. Not by a long shot.

The examples are endless.

But – there’s a silver lining in all of this for you. Here it is…

You can use turn this around in your favor when marketing to private investors. For instance, I don’t know many smart real estate investor who charge a fee for using somebody else’s money for deals. Imagine that for a second: somebody wants to place their funds with you, you can do a deal that will net a $50k profit for yourself and a 12% return for the investor but…you decide to also charge them a 2% ‘management fee’ as well.

That would be dumb.

That’s what every other person and company who is going after their money wants: fees, fees, fees.

You, however, can propose the exact opposite. You can propose a deal with incentives that are aligned. You make your money when the deal profits and your investor is paid. This is the fastest way to stand out from the crowd of screaming voices who want to get their hands on your investors money.

I will tell you that, without fail, EVERY SINGLE TIME I talk to a prospective new private investor I remind them or bring up in some way that they are making more money by investing with me because they aren’t getting nickel & dimed on fees and other expenses that eat away at returns over time.

It’s very, very important that you have a strong unique selling proposition when you market to and speak with private investors. Setting yourself apart by not chipping away at their nest-egg with non-value added is a good thing to add to your presentation.

I’ve found it helpful to print out some mutual fund prospectuses from the largest funds (Fidelity Magellan, etc. – just go to Morningstar.com and look up the largest funds by assets).  Look through these and find the holes. Find where the average mom and pop investor – and the sophisticated investor- are getting bilked. You can work this into your presentation. Not in a negative selling standpoint, but to show differentiating characteristics.

-Happy Investing

P.s. If you ever worry about your investors getting scared off from paperwork (SEC disclosures, etc.) you can just compare yours with one of those mutual fund prospectuses and your ‘fine print’ will compare quite favorably with the ‘fine print’ of the mutual fund companies. It’s a good exercise for you to go through as well.

People always look at me weird when I say this, like I’m from Mars or something.

A financing process is where you fill out an application, talk to a few bankers or mortgage brokers, and see if the marble on the roulette wheel lands on your number.

The wheel used to be small and there were less numbers. Now, it’s more like play Russian Roulette trying to get an institution to finance your real estate investment deals.

Unfortunately, many real estate investors like to take the same approach with private money that they do for banks. What you quickly realize, is that that the aspects of the deal that are important to financial institutions are less important (sometimes unimportant) to private investors.

And, don’t forget that you won’t get much private money by just hanging out a shingle – you have to go about systematically and consistently making your opportunity available to those that are ready, willing and able to place funds with you.

Now that we’ve firmly established getting private money as a ‘marketing process’, I am often asked if ‘word of mouth’ is the best form of marketing for private investors.

Great Question.

This question is rooted in the entrepreneurial axiom of happy customers telling other people about your products or services being the best way to get new customers.

I couldn’t agree more.

The absolute surest (and lowest cost) way to meet new private investors is to have existing investors spread the word about you. If you do things right, and you actively encourage it, you will get referrals for new investors. This will happen in the course of your business, just like if you owned a landscaping company and you took really good care of your customers. Soon the neighbors will want you to quote their yards and you’ll build a nice business.

Note above how I emphasized the words actively encourage. You should never leave your referrals to chance. Try to encourage it each time you communicate with private investors. Here’s a big tip: I routinely write to my private money investors (personal correspondence) and always include a line where I ask “if they know or come across anyone they think would be a good fit for receiving the same type of returns and first class service…” Works like a charm.

I can already hear some of you screaming bloody murder:

“BUT ADAM, WHAT IF WE DON’T HAVE ANY PRIVATE INVESTORS YET?!”

Yup, I saw that one coming a mile away. And it’s a good question too.

Back in the 1980′s, Michael J. Fox was a big star. Family Ties, Back to the Future, etc. Good stuff.

Well, there was this one movie he was in, I think it was Secret of my Success or something, where he is a young guy coming up in the world and laments: “how can I get credit if I can’t get credit?” He is trying to establish himself and move up in the world and nobody will give him a chance.

Seems like a ‘catch 22′

Maybe it’s the same Catch 22 you’re in.

You want to know how you can use word of mouth marketing to get private investors when you don’t have any private investors…right?

Ok, here are a few things you can do.

First of all, since you’re already in business, you probably work with people right now. Real estate agent, broker, contractor, etc. There is big-time gold in knowing and working with the right people. So if anybody you work with is a scum bag, take an inventory and clean house. It’s better to switch now then pay the price later when there’s a few hundred grand on the line.

Now, if you know some good people – and this applies even if you’re working on your first deal – you should really think about getting in good with them. Take some out to lunch, send some letters, throw some gift cards around. Sow the seeds of good will. In the process,  you can begin getting the word of mouth thing going for yourself.  You tell people what you want and listen to what they want. Try to scratch their back a little bit. Refer them some business and it will come back to you.

Too many new real estate investors (or those new to private money) will want to jam their offer down everyone’s throat without asking first what they can do for the other person. When you’re just starting out getting the referral machine going for yourself, the best thing you can do is reciprocate business. This is one of the fastest ways to build word of mouth for your business when you don’t have any existing private investors to leverage.

Here’s something really, really, really important to keep in mind with all of this: you probably cannot pay referral fees to people who introduce you to private investors. So don’t ever offer to pay any. Usually, securities laws prohibit you from doing this. Unless you have a registered security and the person getting the referral fee is a licensed securities broker, there’s nothing but trouble going this route.

Whew!

That’s a lot to digest. Let it simmer for a little bit. Marinate on it.

I suggest making a targeted plan to begin facilitating word of mouth marketing in your business for private money as soon as possible. Yesterday would be a good time to start.

1?

5?

50?

If you’re anything like me, you have a entire library full of them. Zig Ziglar, Tony Robbins, Tom Hopkins, Brian Tracy, Jim Rohn…you name it and I’ve probably got it. What about all the self-help classics? You know; How to Win Friends and Influence People, Think and Grow Rich, Magic of Thinking Big, How I Raised Myself from Failure to Success in Selling? How many of those have you read?

Timeless classics – all of them. Get ‘em if you don’t have ‘em. I plan on my library being the greatest material thing I pass down to my kids.

For those of you that own and have read these great multitudes, you know that one of the most important principles advocated for achieving success is Persistence. Not giving up in the face of adversity. Sticking to your dream when there is no light to be seen at the end of the tunnel. Pursuing the sale until the customer has a restraining order placed on you.

These are all great examples where you should be persistent. No doubt about it.

But, when you’re raising private money, when does persistence start to have negative returns on investment?

What I mean is: at what point in the process does persistence move into annoying your prospective investor to the point where they will have a visceral reaction to placing funds with you?

First of all, most real estate investors relegate their pursuit of private money to posting something like this on Craigslist:

Private money partner wanted. 30-40% ROI. Great DEAL! Call XXX-XXX-XXXX.

If this is what you are hell-bent on doing, then you there really isn’t much I can do to help you. I suggest a steady regimen of lottery tickets to supplement this approach. At least you’ll have some fun with the scratch-offs.

But, if you really DO want to get a stable of real, live private investors to fund your deals, then hark unto me: you must never become a pest to your private investors. You always be in the position of “welcome guest.’

Continually beating prospective private investors over the head with: “here’s what you can do!” will quickly put you in the position of unwanted pest.

The vacuum cleaner salesman (bless them) that solicit door-to-door are an unwanted pest by many people. The pushy car salesman is an unwanted pest. The people at the mall who throw perfumes and other magical skin cures at you as you walk by are unwanted pests (at least for me).

The real estate investor that provides valuable information and a valuable opportunity – and presents this to the private investor the right way – will always be a welcome guest.

You must create reasons to have your investors want something from you. It could be inside market information (which you have-for the real estate market), it could be a way to beat the stock market and suffer less heartburn, it could be an alternative to their financial advisor. The more reasons you have for private investors to want something from you (instead of you always being in the position of wanting something from them).

It’s really a transition in mindset: Move from wanting to offering.The more you want, the more you become an unwelcome guest. Why? Because everybody wants a piece of somebody with money. Everybody wants to have their hand in a wealthy persons wallet. You cannot be in this category.

Going back to an author and speaker mentioned earlier, Zig Ziglar’s most famous quote is: “you’ll get more of what you want in life by helping other people get what they want.”

Persistence starts to become annoyance when you become an unwanted pest. If you’re always panhandling for private money, or continually drumming the same beat with the same prospective investor over and over again, you’ll fall into this category.

To make persistence pay off for you, remember to become a welcome guest. You’ll never wear it out.

“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.

Take this quick quiz to see how well you know and understand your prospects. If you can’t answer these questions, how can you be sure that you are attracting the right people to invest money with you? How can you be sure you are reaching them with a compelling message about why investing with you beats the pants off of the stock market or any other investment? How can you be sure you are tapping into the conversation they are already having inside their own head with respect to placing funds with you?

I would argue that you can’t. And if you can’t do these things, you won’t know your investors well enough to pull seven figure sums.

Answer the following 10 questions. Give yourself 1 point for each question you can answer and 0 for each one you can’t.

1. Who are they?

2. Where do they live … work … play?

3. What problem do they have that you can solve?

4. How does your investment fit into their life?

5. What else do they place their money?

6. Where do they get information about investments?

7. What is most important to them?

8. What are they most afraid of?

9. What is their emotional connection to your opportunity?

10. How will they rationalize investing with you?

Tally up your score.

0-3 correct = Needs improvement

4-7 correct = Adequate but could be better

8-10 correct = You are well on your way to seven-figure private money!

How did you do?  If you scored in the lower range, don’t worry. You can quickly learn about your private investors by spending a little time on it. It is important to take some time to get to know your investors. Learn all you can about them. Use this quiz as a guide. When you do you’ll be able to speak directly to them each time they get a marketing piece from you or when you sit down with them.

If you take a look around, there’s a lot of competition for investment dollars. Financial firms and banks are starving for capital. If you know your investors better than these firms do, you’ll get the money. If you choose not to pay attention to the type of person that is likely to invest with you, you are effectively short-changing yourself in raising money.

At the top of your mind should be the fact you DO have a great opportunity for someone to make a nice return on their money and also do business with someone they like. You must exploit this combination of power triggers to bring out the checkbooks. The only way to do this is to crawl inside the private investor’s head.

There’s a right way and a wrong way to use the Yellow Pages, newspaper ads and direct mail pieces. When marketing your private money opportunity, you must take care to use the most powerful marketing media available to small business owners today: the internet.

If you’re anything like me, it doesn’t seem like too long ago that we were first hearing about “the information superhighway” and Amazon.com started popping up everywhere (“what the heck is Amazon.com?” I remember thinking to myself on more than one occasion). Since it’s inception and now widespread use across the world, the internet is the most misused and misunderstood marketing medium. Just a tiny fraction of business owners are tapping into it’s vast power and only a small fraction above that use it the right way.

Getting private money investors to place money in your deals is a 

two step process. First, they must learn about your opportunity (most are unaware that investments like yours are available) and secondly they must decide to invest. Blindly assuming the investor knows the in’s and out’s of private mortgage lending or private equity placements is an erroneous assumption.

Your first move in using the internet the right way for getting private money is to educate. You must provide information (without direct solicitation) about what your company does, how you do it and the areas and geographies you operate in. You can provide information through a web site or landing page. Capture visitors contact information so you can send them materials. Focus on enlightening and compelling. Present a strong unique selling proposition that makes you stand out.

Next, think of the internet as a lead generation tool and not a sales tool. Any websites or landing pages (which should be focused on private money and not ‘we buy houses’ or ‘we buy notes’) should be laser-focused on getting prospective private investors to raise their hands and signal themselves out as being qualified. Qualified means they are: able, ready and willing to invest. Make them jump through a few hoops to prove they are ready to meet with you or to receive your prospectus or PPM. Better to have 100 people hungry to learn more about investing with you than to have 1000 people just poking at it with a stick.

Lastly, don’t use the internet as a begging tool. Avoid posting videos on YouTube about how you’re looking for investors who want 10% secured returns on real estate. You know the kind. A guy with a webcam in his office or driving in his car with a bobbling camera telling the viewer all about how he’s got the best thing since sliced bread (yet never seems to explain how). This serves to diminish your credibility in the eyes of any private investor who comes  across you on the web. An unprofessional, unpolished video where you broadcast to the entire world how you need money for your deals isn’t going to endear yourself to many people with money – so skip it.

Ultimately, the efforts you put into marketing your private money opportunity will determine how much money you raise. It’s a simple matter of input and output.

Getting the right private investors to finance your investment property purchases comes down to a simple formula:

Ready + Willing + Able = Private Money

Keep this formula in mind as you prospect for private lenders and equity investors. It’s hard to sell ice to Eskimos.

What prompts me to write this is a simple fact I’ve discovered in my years of buying real estate with private funding:  getting investors is a marketing process, much like looking for investment properties to purchase or getting qualified tenants for rentals or getting the right buyers for a retail house flip. Targeting is all important.

Far too many real estate investors don’t view private money as a marketing process – they view it as a finance process, sort of like getting a mortgage, where you just fill out some paperwork and pray the loan approval gods find in your favor. Your greatest success raising funds will be to provide an opportunity and to attract people to that opportunity. Very different from getting a mortgage.

Just like it won’t make you much money to try selling ahigh end luxury home to someone with $2,000  in their pocket and a 480 credit score, you won’t net much private money from people who aren’t ready, willing and able to invest money with you. Actually, the “ready, willing and able” is a bit out of order- it should probably be: able, ready and willing. Allow me to explain further…

Able – The private investor has the financial means to place funds with you. Their income and net worth justify an investment time horizon of 3-5 years or longer. They don’t plan on living off of their investment returns from you. They are investing money from  savings or other investments and not from borrowed funds.

Ready – Timing, as they say, is everything. Timing is an important component of the private investors decision. For tax reasons, estate planning, personal/family planning and other issues, the timing of when the investor is placing their funds with you can make the hundred thousand or million dollar difference. Bottom line: the private investor must be ready to write the check or move funds when you propose your deal or you are likely wasting a great deal of time.

Willing – The investor must be willing to write the check. This means they must be convinced yours is a good opportunity and that you are a good fit to do business with.

You’ll find many people are ready and willing but not able to invest with you. You’ll also find people that are able and willing, but not ready to pull the trigger. The key to getting private funding in a hurry is to qualify the private investor as soon as possible in the relationship. This can sometimes be a challenge.

To this, I suggest one great qualifying mechanism for you that has worked wonders for me in spending my time with the right private money investors: The Investor Questionnaire.

An investor questionnaire is a document, approximately 3-4 pages, which the prospective private investor completes prior to investing with you. The investor fills out information about their income, assets, investing background, risk tolerance and financial goals. If you have a prospective investor complete one of these, it actually serves two purposes:

1. it qualifies the private money investor – determines if you should spend additional time with them

2. it serves as developing a ‘substantive relationship’ for securities law purposes – can enable you to sell securities with exemption from registration – such as Regulation D offerings

The sooner you allocate your time toward “able, ready and willing” investors, the sooner you’ll unlock the key to the Holy Grail of real estate investing.

Remember this old business axiom:

“Never try to teach a pig to dance. It’s only gets you messy and it annoys the pig.”