Does a Rising Stock Market Make it Harder to Get Private Money?

We’ve all heard it before: real estate is “down” and the stock market is “up” – therefore, why would any private money investor want to place funds with you?

Some naysayer probably threw that line at you during 2009. After all, the stock market was looking at the abyss in March and then reversed course. Since March 9, 2009, the Dow Jones Industrial Average (The Dow) is up 3,691 points or roughly 56% (at 10,328) since its March bottom. I won’t lie to you: this is one heck of a stock market rally. It’s enough to get people excited and almost make them forget that in October 2007, the Dow was at 14,093.  So, stock market investors that were in at the top in fall of 2007 are still down some 3,765 points (not including dividends).

Doesn’t look so good now, does it?

This stuff is important, because the performance of other asset classes dictates how receptive most of your prospective private investors will be to investing with you. If the stock market is going up like crazy and private investors are hearing everywhere how people are making money in stocks and are perhaps even seeing big gains in their own portfolios, then your real estate investment is in direct competition for those dollars.

In one way or another, it just works out this way – there is competition everywhere. Someone who has $500,000 or more to invest simply has forces at work for that money. This is why you must show private money lenders or equity investors good returns – they always have choices with their money.

But, a big stock market rally doesn’t  have to pull money away from you – you can actually use it to pull more in.

How?

First, start with the fact that the stock market is an inherently volatile object. There’s no clear path from A-Z. In times like this, when the stock market is on a sugar high from being down in the dumps, it’s easy to remind your private investors that the market could just as easily slide back down again as it went up – with no rhyme or reason. On the other hand, there is substantial rhyme and reason behind your real estate investments and the predictability of the return on investment from an apartment building investment or a single-family house flip or a mini-storage acquisition.

Also, the stock market is something that is still sort of a mystery to many people. Why, exactly, does the market go up or down? There are a lot of pundits and experts with answers to this, but the average investor doesn’t really have a clue. Your private real estate investment, on the other hand, is quickly and easily understood – and you can play this up big time with either private lending investments (when your borrowing private money) or private equity placement (where someone is investing with you for a share of the profits and cash flows). Your investment is simple: people need housing or a location for business purposes —and you provide that location. Very easy and private investors like this.

A rising stock market, even one rising to the tune of 56% in less than a year, is nothing to worry about if you have a good plan of action and you know how to propose your offering to investors in a unique way. There is only one thing that makes it harder to get private money…and that is only the obstacles that you put on yourself. Remove your mental barriers and watch the money pour in.

Tags: private money blog, Private Money Investing, stock market investing versus real estate