For today, I’m going to leave out the legal “nitty gritty” – as that could take up a few pages in itself. Instead, I’m going to focus on the practical aspects of it.

First, I need to get something off my chest: if you want to use the internet to attract prospective investors to your opportunity, please stop using the garbage industry slang “…X% secured by real estate…” as well as using the term “private lenders…”

If you’re doing this right now, whack yourself on the head with a rolled up newspaper. Bad dog. Ok, you probably want to know why you shouldn’t do this…you probably want to know why, considering there are a lot of companies who will build “custom private lender websites” and the like for a pretty penny.

It’s all about… getting results instead of spinning your wheels.

Attracting private investors to your opportunity is all about the right marketing. The standard dogma that somebody trumpets about how you should broadcast “x% secured by real estate” really doesn’t hit home with many prospective investors. Plain and simple: people that will invest with you simply aren’t searching for this stuff on the internet. Want to know who is? Other real estate investors, that’s who. People who want to get the same private money you do. You don’t want this kind of traffic on your website.

Not matching your message to what your investors are looking for and what interests them is a mistake. This is akin to a computer maker leading their marketing with the fact that they offer a full 1 year parts warranty. Nothing wrong with offering the warranty, it’s just that people don’t look for that when they’re looking for computers.

As far as using the term “private lenders” goes…well, I can say that veritably NONE of my private lenders think of themselves with that particular moniker. They think of themselves as “investors” and, typically “partners”. Even though they may very well be private lenders, they don’t think of themselves that way. It’s a term we use in the real estate investing industry that the general investing public is unaware of.

Also, please stop trying to close the deal right on your website. Most of the real estate investors website that I have seen pretty much brow beat the visitor over the head with a sales pitch without really showing the benefit for the investors. There’s no compelling reason to do anything. The best of these sites I have seen (which my coaching students have solicited  my help on as well as randomly looking once in a while via Google search) simply asks the investor to submit information to receive a prospectus.

Not a great call to action.

I mean, why should the investor request a prospectus, when they don’t know anything about how investing with you works.

These sites that say “become a private lender!” make me want to vomit. While there may be isolated cases of results with this, I haven’t seen any evidence of long term success using this approach for purely online generated leads (via organic search, link or landing page from PPC or email). This “become a private lender” message simply doesn’t resonate well with the demographic of your prospective investor target.

The only way this type of approach works, is if you have established yourself in another sphere as an expert, and the hits to your website are being funneled there from other sources that pre-qualify the visitor.

If you are going to generate traffic to an online website, your website should present an extremely unique and compelling story. You should explain (in simple terms) the benefits you provide your investors. You should make the entire purpose of your private money attraction website to generate qualified leads and build an email and physical mailing list. Your website should be the first step in a multi-step, qualifying private money attraction campaign.

Since I rely so heavily on offline promotion (direct mail, space/print, etc.), I’m often asked what “makes me an expert” in online marketing.

Well, I don’t hold myself out as an “internet marketing guru” (though I’m sure my experience and pure profit results in this sphere dwarf by many times what some of these alleged  internet “guru’s” have done). However, I do spend close to 5-figures each month on online marketing (I pay Google a lot of money, but I also make more off of them) and I’ve spent a great deal of time over the past several years honing my approaches. Testing to see what works and what doesn’t.

You should never rely on just one way to generate interested private investors. That would be like me telling you (if you owned a retail clothing store) that the only way you could get customers in your door was to advertise in the yellow pages. Not true. If you did this, you’d be dead in a week and liquidating your inventory. If you did own a store, you’d use every profitable means possible to get customers in your door.

Same with private money.

If you rely on just one way to attract investors – say, if you solely relied on the internet – then you could expect about the results you’d get. Now, if you’re really, really good you can laser focus like this. Personally, I want to raise private money quickly, so I employ a variety of tested approaches. You should use an integrated approach combining online, direct mail, networking referrals and others to raise private money in a hurry. You results will be much better and you will lose out on less deals this way.

Use your website as a lead generating tool. If you don’t have the right sequence in place, you shouldn’t’ put up a website. Take your time and do it right. This way, you won’t drop the ball with a good opportunity.

-Happy Investing

Have a “Power Team” of professional advisors if you want to build a big, successful business.

Robert Kiyosaki often talks about how his Rich Dad would meet with his attorneys, accountants, insurance people, bankers and other essential business associates/service providers to help him prepare, plan and execute his vision of building wealth.

Since Rich Dad, Poor Dad came out in 2000, I’ve noticed an increasing trend of people of experts advocating that you have a your “team” put together. That is, in order to build a successful business, you should have on your speed dial:

• an attorney – a real estate attorney if you’re a real estate investors
• a corporate/contract attorney
• a bookkeeper (to keep your records straight)
• a CPA or tax attorney
• an insurance agent/broker (to help you identify and reduce risks)
• a banker
• a mentor or advisor

There are probably some others that I’m leaving off this short list.

One big question is: is it really necessary to have this power team to build a successful business?

In short: my answer yes. Butt…

First, let me tell you the cynical side: a story about how an attorney blew up a private money deal and cost me a boatload of profits.

About two years ago, I was beating the drum and raising a ton of capital. A couple of potential private investors came into my office one day, sat down in our conference room and I laid everything out for them. These investors were already qualified and had indicated in multiple ways that they were ready to pull the trigger and just needed to see the details.

During my meeting with these investors, everything went great. Couldn’t have gone better. They signed an investment commitment for and we were scheduled to close a deal the following week.

They walked out of the meeting with my company’s disclosure documents, along with other required information for them to review before funding the deal. When they asked if they could have their attorney review the materials, I said: “no problem, I encourage you to do so.”

Big mistake.

Flash forward to the following week, with about 72 hours before the deal was supposed to close. I called one of the two potential investors and I asked him if everything was ready to go. He hesitated for a second and then he told me that his attorney had advised him that “…this deal wasn’t such a good idea.”

What?!

Needless to say, I was pretty surprised by this. Shocked almost. These investors met the criterial of “accredited” by SEC definitions. They were given the proper disclosure documents, a copy of our business plan, they had seen my company’s financial statements, tax returns and bank statements – along with a huge stack of profitable deals that had been closed with other private investors funds —AND they had also been given references to other private investors who had invested with me that they could call for a reference.

I just wasn’t sure where the disconnect was. What had this attorney seen that caused him to advise his clients against investing with me. The investment didn’t even represent 5% of the net worth of the investors and, it was a secured mortgage loan with about a 50% LTV.

What the heck?!

I didn’t want to lose my cool with the private investors, so I asked if we could do a conference call with their attorney. The call was arranged for the next day.

Dialing into the conference call, I wasn’t sure what to expect. Was this attorney crazy? Did he need a reason to justify his billable hours to his clients?

I soon found out the answer.

It turned out this attorney (who’d been a member of the bar for at least 20 years) was ABSOLUTELY CLUELESS about what he was advising his clients on. During the call, I found out that this attorney didn’t have any specialty or expertise in real estate, corporate or securities law. Turned out he worked in another field of law.

How could this guy possibly, in good conscience, advise these prospective investors on anything related to a real estate investment?

Well, I never did find out the answer to that question – a the conference call ended abruptly…right along with my private money deal.

Flush-right down the drain.

I’m talking about $250k in private money that was 2 inches from the goal line. At the time, that amount of capital could have generated about $100-$150k in annual gross profit for me.

And, I’m not gonna lie – that night…I came home and had a stiff drink. Johnnie Walker Black Label.

The sting wore off over the next few days and business went forward. I raised a lot of money right after that incident and, truthfully, I don’t think about it all that often…Except…

…when people get on a real high horse about how important it is to have a stable of professionals on your “power team.”

I still think it is a good idea to have qualified professionals who are on your ‘team’ —–BUT…BUT…BUT…BUT…BUT…

Be VERY VERY careful about who those professionals are. Because, the attorney in the case of the two potential investors with me, cost his clients about $30,000 per year in passive income. I know for a fact that those two investors kept their money on the sidelines and they missed out on a nice opportunity to make money with their money. Some “service” they got from their attorney.

As you may note: it’s a lot easier for a professional to kill a deal like this than to advise their clients to invest in it. The professional is “safe” by saying “no” and they face the risk of losing a client if the client invests and loses money. It’s a matter of incentive. Plus, the professional is going to have their guard up against anything they perceive as out of the ordinary. Strange, considering the attorney’s and CPA’s who happily send their clients to get slaughtered in the stock market by referring them to their financial planner buddies.

Back to the task at hand: I do think it’s important that you have a GOOD and COMPETENT advisor for your particular needs. But, be extremely cautious in whom you select to advise you (or your private investors). Make sure your advisors know exactly what you do in your business and what your specific needs are. Interview many before you pay out even one red cent in a retainer.

If you think that a referral from Uncle Joe to his “tax guy” is going to fit with your real estate investment goals, better think again. After all, it’s YOUR business and YOUR profits that are on the line.

And…this rings especially true with the most important aspect of law concerning raising private money: securities laws. Make sure you hire a securities attorney that has dealt with small company offerings and exempt transactions – and, for real estate in particular. Many securities attorney’s know the SEC codes but they don’t know much about exempt transactions for small, private companies. Most corporate attorneys are completely clueless about securities laws or they have a vague recollection of them from their law school days. Don’t let any attorney tell you they can handle everything for you. They can’t – it’s just more billable hours. They are in business to make money as well, but you have to be your own advocate.

Here’s something else…

You should encourage or at least mention, to your private investors that they can/should review your offering documents with their advisors. If a prospective private investor asks you if they can have their advisor look over the materials, your answer should be “yes.” But, here’s what you do when that happens. Offer to meet with the investor and their advisor or, at the very least, set up a conference call. You should be comfortable in spending at least a few minutes walking the private investors advisor through the details of your deal. It could go a long way in smoothing the way for the deal to close without snags.

Ok, there’s the bell. Lesson over for today. Commence butt-kicking and, as always…

-Happy Investing

If you listen to some “experts” enough, you’d probably come to the conclusion that you should never bring more than one private investor in on a particular deal.

In fact, if you listen to enough “experts” on enough subjects, you might not want to leave your house in the morning for fear that the sky would fall.

Thankfully, you’re not a henny-penny and you don’t think that the sky is falling.

With private money, pooling means bringing multiple private investors funds together, combining those funds and using them for a real estate transaction (actually, there’s probably a more lengthy legal description, but this is what it means in plain English).

So what’s the big deal?

Well, the securities regulators want to make sure that you aren’t misusing your private investors money. They want to make sure you aren’t taking money from one person to pay off another person. They want to make sure that you are making proper disclosures to your investors about where their money is going and how it is being used. They want to make sure you file the proper paperwork with them to let them know what you’re doing.

Whew! All of this sounds like a whole lot of big brother, doesn’t it?

Yes, it probably is for the average real estate investor who wants to raise $100k for their first flip deal.

Fear not.

You can handle the pooling issue quite easily when you know how.

Let’s start from the top and I’ll tell you how I personally avoid potential problems with pooling.

1. I don’t bring multiple investors in under a single collateralized investment. What this means is that I don’t put more than one investor on a mortgage. I don’t form a company for my investors, put them all into a company and have that company loan me money for a deal where I give that company (made up of private lenders) a mortgage or lien. It creates way too many potential headaches. If two private investors both want a senior lien position, I will give one of them a first mortgage in exchange for a lower interest rate and the other will get a slightly higher interest rate for a second mortgage. As long as the LTV is within a good margin, there’s should be no issue with there being significant principal coverage in the event of a worst case scenario for the lender(s)
2. I use equity investors – the pooling issue is easier to overcome if you bring private investors in as equity partners in the deal. That way, each investor owns a % of the company in proportion to the funds invested. The investor funds aren’t commingled together under one particular security. The security being offered is a unit interest in an LLC or LP. The disclosure documents and other offering paperwork provided to the private investors show them what their investment is. The partnership or LLC paperwork spells out exactly how distributions are handled and whom will handle them in the event that the manager (me/my company) fails in their capacity to perform or is incapacitated (dead/injured) and cannot perform duties. I know this one sounds complicated – especially for beginners – but it’s really just a matter of common sense and putting yourself in the investors shoes
3. I use accredited investors as often as possible – you’re life is a lot easier when you bring in capital from investors for which a $50k or $100k investment is not a large % of their net worth. This way, you don’t have to worry as much about redemptions and you can have more breathing room operating your business
4. I make the proper disclosures and file the right documents – it goes without saying that you have to be compliant with your state (and federal) securities laws.  I use Reg D exempt securities offerings (for the most part) and mostly Reg D 504 to be more specific.

Each time I touch on this subject matter at all, I always have to tell my readers that I’m not an attorney or tax professional and that I recommend everybody have a securities attorney that they can use, as well as other professional counsel. It might sound like standard mumbo-jumbo, but it’s just plain true when you think about it.  It’s foolish and unprofitable to pretend like you can do everything on your own in real estate and raising other people’s money. Don’t be a lone ranger.

Now if anybody tells you that you cannot bring mutliple investors in together on a deal, you can tell them that they don’t have their facts straight. You can (and will often need to, as your business grows) bring multiple investors together to fund a deal. As long as you handle things the right way, you’re in no danger of anything except proabably making a lot of money for yourself and your investors.

Private money is the best way to acquire just about any type of deal out there (unless you are already wealthy)… and right now cash is king and will hold the crown into any kind of forseeable future.

I always laugh when people tell me that private money isn’t that important because the credit markets are improving (FUNNY!) and they feel as though they can haggle with a bank who will let them steal a commercial property off their books for 50 cents on the dollar and THEN hold the paper on that same  deal, while at the same time coming with zero cash or nor management record.

You could spend a whole lot of time doing those types of strategies and get maybe one deal every so often (if you’re lucky – but, if you were that lucky, why not put a chip down on the roulette wheel?) or you could spend a little time raising some real cash and build an ongoing system of acquiring properties with none of your own money that put you in total control.

As I always say, private money isn’t for everybody. It’s only for those real estate investors that want to be at the top of the food chain eating steak while their competitors squabble for the table scraps.

-Happy Investing

Here’s the “meat and potatoes” of the conversation:

Prospective investor (PI): “I’m a bit worried about the stock market, it’s gone down a lot in the past few weeks and I’m thinking of taking some money off the table there.“

Me: “I hear you…it’s hard to understand what makes the market fluctuate so much, especially the extreme up and downs. Are you more focused on preservation of wealth now versus accumulating?”

PI: “You could say that. I’ve got enough to be comfortable on, but I’ve always focused on increasing my means. Your information says that you can get my money out for respectable returns. I think I’d like to give it a try, but I don’t know if I want to tie my money up for very long.”

Me: “Yes, we can definitely place your funds into a real estate investment that you’d be very comfortable with – something that would give you some stability in your portfolio. Now, as far as the time frame for investment, can you tell me what you have in mind?”

PI: “I’m just worried that the market may start shooting back up. If I pull funds out to invest with you, then I might miss out on a big rally.”

Me: “I understand.”

PI: “The last time I pulled a bunch of money out of the market, it went right back up two months later.”

Me. “It’s hard to predict and time it right all the time.”

PI: “Yes, they say you can’t time the market, but it sure seems like people do get it right and then you’re left out of the bull run.”

Me: “You’re right. I’ve seen it work out for some people quite nicely. On the other hand, I’ve seen it go sideways, too.”

PI: “I suppose…that’s true. Nobody’s got a crystal ball.”

Me. “Mr. Investor – why don’t we start with one of our short-term higher yields…where you can invest with us and receive an annualized yield of 11% but you will have the option to re-invest and roll-forward  every 4 months?

PI: “Ok….how would something like that work?”

Me: “It’s pretty simple, really. We like to keep things as simple as possible.”

PI: “Simple is good.”

Me: “I agree. Now, if everything makes sense to you, is it fair to say that you’re comfortable with the minimum required investment of $100,000?”

PI: “The money is not the issue at all. I can call my broker tomorrow…or even today. I need to talk to him anyway.”

Me. “That would be fine. Here’s how the investment would work: you would place funds with us in a private placement. As you’ve seen in the literature…

–End conversation snippet–

I went on to explain how the investor could place funds with my company for our short-term flip deals. Wherein, they would be a secured mortgage lender. They would receive a promissory note which would pay monthly interest for 4 months. At the end of 4 months, the property will be sold and their principal amount returned. At that time, they would have the option to re-invest and place their funds in another deal. This is how it was structured as a “short-term yield.”

If you are paying close attention, you can see that there are some very important pieces to the puzzle that I put together here:

1. I accommodated the investor – but kept it win/win. My marketing pieces tell investors that I have a 3-5 year time horizon for placing funds. This helps shake off a lot of people who really don’t have the means to invest. If the investor expresses a strong desire to place funds, I will everything I can to make it work. Why? Because I want to get them invested. Once they place funds, I will dedicate significant time to showing them how crazy it would be for them to invest anywhere else. More on this in a minute.
2. I qualified the investor – re-confirmed they have minimum funds to invest and they those funds were relatively liquid and ready to go
3. I did not “negative sell” or downplay their investment philosophy. Even though I don’t agree with trying to time the stock market, etc. I did not say anything to throw salt in the wound or rub in how great my investment was compared to the alternatives. This fits nicely with my model of presenting private money as a nice menu choice for investors instead of browbeating them and telling them they should eat at the new exotic restaurant in town. It’s easier to tell them they should try the lobster instead of the hamburger on the same menu where they like to eat.

More about #1 (above): I really want to get the investor committed and used to the idea of having their funds placed with me. After the closing, I go way above and beyond what any reasonable (or unreasonable) person would expect in terms of the proper care and feeding of investors. They will feel like they’re being treated like royalty and I will then turn on the referral and supplemental money machine (more money from existing investors as well as referrals from those investors).

Some of you might wonder how this applies if your business model is buy & hold for SFH or commercial. Honestly, I think you can apply it just the same, albeit with a slight twist.

In the case of an apartment building, you can simply tell the investor that, if they commit the required funds, that you will allow them a special liquidation preference in a certain period of time. This puts a little more pressure on you to replace those investors funds if they want to redeem, but it’s still possible.

For longer term projects, the “short-term” approach won’t work as well. You can, however, still use the qualifying mechanisms and “non-negative sell” techniques to great success. If you have a longer term project and the investor meets my qualifying criteria as: “ready, willing, able” then try the following:

• counter with smaller investment minimum
• counter with preferential tax treatment for distributions (capital gains as opposed to profits in the partnership distributions for an equity partnership – LLC or LP)
• offer escalating returns commensurate with time invested (e.g. 10% for up to 12 months, 12% for up to 18 months, 15% for up to 24 months) – if your project can support it. This is how many hedge fund structures are set up, except the incentives usually flow to the managers versus the investors

RRRRRRRRRRRRRIIIIIIIIINNNNNNNNNGGGGGGGGG!

There’s the bell…class dismissed for today. Please go forth and continue kicking butt.

-Happy Investing

It wasn’t that long ago (at least it seems like it wasn’t that long ago) when I started hitting the private money trail. At the time, I thought that anybody would be crazy to not sit down and consider investing in a private money deal. Then, I realized that I was crazy.

Why?

Because I was assuming that people knew what I knew. I was assuming, that the average investor that I was talking to had been to all the real estate seminars that I had, read all the books and been “up to speed” with what was possible in the marketplace.

Wrong. Wrong. Wrong.

This wrong-headed thinking cost me a lot of dough. It cost me a lot of blown appointments.

It’s just plain dumb to expect your private investors to know what you know. Often, they don’t even know much about investing – they have a financial planner or CPA or somebody that guides them. Therefore, it’s your job to first educate them. I advise providing educational materials before you even sit down with somebody the first time. This will save you a lot of frustration.

5 (Critically) Important Things…

Last week, I spoke at a real estate investor association in Macomb County, Michigan. I was teaching real estate investors 5 of the most important details with getting and using OPM (other people’s money) to fund their deals. One of these top 5 was: marketing for private money. Actually, to be more specific, correctly marketing for private money.

You see, you just won’t be able to get private investors if none of them know about your opportunity.

And…there’s another VERY important – and often forgotten – aspect of correctly marketing for private money and that is…positioning.

I’ll tell you, there’s a lot of bad “poison info” out there from people who will tell you (from the front of a room no less) that you can simply get a list of people who stuff money under their mattresses who will place money with  you.

Without getting into too much detail, I will tell you from blood and guts, in-the-trenches, getting-my-teeth-kicked-in, experience that people who love to stuff their nest-egg into CD’s, savings bonds and under their mattress ARE NOT your ideal target investor.

You have to go after those prospective investors that have ample funds already invested in: stocks, mutual funds, bonds, commodities, REIT’s. And, you have to go after people that make good money. The $50,000 per year household makes different decisions than the $150,000 per year household. Just a fact of life. Don’t completely ignore the $50,000 household, but don’t focus a lot of time on it, either.

Because it’s ideal to target investors with means and funds currently invested, you then need to position your investment as a benefit-filled alternative to some of what they are currently invested in.

Positioning is all-important in marketing.

And, in positioning your private money investment, you must take care to establish two things:

1. You – as an expert and credible source of information

2. Your investment – as the proper allocation for part of somebody’s portfolio.

For now, I will leave #1 (above) for a later post and focus on #2. Mostly because I think #2 is a bigger challenge for more real estate investors looking to raise private funds.

You should make a concerted effort to position your investment as  a good “allocation” of your prospective investor’s currently invested assets.

Since there are so many ways you can do this (at least a dozen that I have successfully implemented for myself and my students), I want to just focus on one very basic way for today. This simply involves creating a table comparing and contrasting stocks, mutual funds and other investments with your private money investment deal.  Here’s an example:

Benefit                           Private Real Estate Placement         Stocks               Bonds            Mutual Funds

Principal coverage                                Yes                                          No                Maybe                 No

Peace of mind                                          Yes                                         No                    No                     No

Ease of investing                                   Yes                                      Maybe                No                      X

Tradeable                                               Maybe                                   Yes                   Yes                   Yes

Price fluctuation                                    No                                     Volatile          Volatile             Volatile

Fees & Commissions                              No                                          Yes                 Yes                     Yes

Etc….

Yes, this is a very basic and simplified example, but if you aren’t using a tool like this, you are really selling yourself short.

Because private investors “don’t know what they don’t know” – and because one of the most important roles you have in bringing in private money (via marketing) is to educate – you must take care to present easy-to-understand information that is digested quickly and taken to heart.

Present this information to your investors before you meet them. Design your marketing pieces to position your investment as simply a new option on the menu. You don’t want your investors thinking that they’re eating at a new an exotic restaurant. You want them thinking (correctly) that their menu of choices has simply been updated. They now know they can “choose” to invest with you.

Make your private investors choice an easy one.

-Happy Investing

Before you answer, here are a few popular choices:

• Run around like a crazy person and tell people that you’ve just discovered the second best thing to the lost city of gold
• Slap a business plan together and crunch numbers on a spreadsheet until you’re blue in the face
• Start posting ads on real estate message boards or online classifieds about your deal of the century

If I were you – I would not choose any of the above. Even though having a business plan is important to A: running and successful business and B: getting funding, I still wouldn’t rank it as numero uno on my to do list if I had to start all over again at zero with no private money.

Knowing what I know now about getting private lenders and equity investors to fund my real estate deals, the first and most important thing I would do is….

Establish a Unique Selling Proposition (USP).

I think a USP is perhaps the single most important thing you can do for any business when it comes to marketing. And, make no mistake, raising private money is all about marketing. Why? Because if people don’t know about and do not see the benefits of investing with you in a way that matters to them they will not invest. Period.

Ok, so what exactly is a USP?

Great question.

A USP is  a way of presenting your product or service which completely differentiates you from any and all competition while at the same time promising a huge benefit to the customer that moves them to action.

Here are some examples:

“Hot, Fresh Pizza to Your Door in 30 Minutes or Less – or It’s Free.” (Dominos Pizza)

“When it absolutely, positively has to be there overnight.” (Federal Express)

“Melts in Your Mouth, Not in Your Hand.” (M & M’s)

Now, before you think that I’ve totally lost my mind – I mean, you’re thinking ‘how does this relate to real estate investing?’ – just consider this:

There are thousands of companies that are competing from your private investors funds. Banks, Mutual Fund Companies, Insurance Companies..you name it. If you think that the first thing your private investor thinks about in the morning is how and where can he find a private mortgage investment – you are dead wrong.

Every time your prospective investor picks up a newspaper, there’s an advertisement for Fidelity Investments, T Rowe Price, ING, and the list goes on and on.

If you cannot crate a unique and compelling reason (beyond: “earn 10% on your money secured by real estate”) then you will have a much longer and tougher road to raising private funds.

That’s my rationale for establishing a USP as the first thing that I would do if I had to start all over again at 0 private money.

How can you get started doing this? Actually, it’s a heck of a lot easier then you think.

First, start with the benefits of investing with you. I wrote about how to find the benefit versus the feature of your private money investment in a recent post, so I will let you read more about it there. Suffice to say, your USP must contain a great benefit for your investor that also makes you different from the competition.

I will try to construct one right here for an example. Keep in mind that this won’t be  a perfect one but it should get you started in the right direction. Ok…let me see..

Let’s start with some benefits:

• no fees or commissions (unlike mutual funds or stockbrokers)
• build wealth faster
• inflation hedge
• principal protection
• peace of mind

This isn’t an exhaustive list, but it gets us going in the right direction. Now, how can we translate some of those so our offering is something unique and extremely beneficial to the potential investor? (keep in mind, that even if your product or service isn’t 100% unique on it’s own, you can present it and offer it in a completely unique way)

How about….

“Double your money every 6 years without losing a wink of sleep.”

Not bad. I don’t hate this one. I’m not sure I’m in love with it yet. It’s a little wordy..but it could easily get the job done.

Want to know how I broke this down?

First of all, “double your money in 6 years” is ONE HUNDRED MILLION times better then saying “12% interest”. One is  a feature and one is a benefit. Next, saying “without losing a wink of sleep” is better then saying “peace of mind”, “no hassle” and “preservation of principal.”

I’m pretty sure that if you used this message that it would land just fine.

When it comes to USPs, all you have to do is a little role playing. Have somebody ask you: “why should I do business with you?” Your answer should then be your USP. Think about it. Let’s go back to the famous examples we looked at before.

Federal Express Example

Q: “Why should I use Federal Express?“

A: “Because your package absolutely, positively has to be there overnight.“

M&M’s Example

Q: “Why should I eat M&M’s?”

A: “Because M&M’s will only melt in your mouth, not your hand.”

Here’s an example as it applies to private money:

Q: “Why should I do business with you?”

A: “Because with me you can double your money in 6 years without losing a wink of sleep.”

I hope you now see the importance of developing a USP. It will give you the foundation to completely dominate the competition in raising private money. All the other real estate investor using the same old “earn 10% on your money…” bit will be blown away by you.

More importantly, you will be able to quickly and easily convey a benefit to your prospective investor that will create a burning desire inside of them to place funds with you and tell everyone they know to do the same thing.

-Happy Investing!

You know; the type of marketing where you send a physical mailing to somebody’s home so that they can touch, feel and read a marketing message in their hands?

It seems as though everywhere I look and everything I read is all about “online, digital and social” marketing. Nary is anything written anymore about direct mail. Sure, there are some people here and there who use it for their real estate investing businesses – and kudos to them – but the digital advertising tidal wave has engulfed just about everybody in business.

And, if it’s engulfing you, you may be flushing hundreds of thousands of dollars in private money right down the toilet.

Here’s what I mean:

Direct mail is a very tried and proven method for getting results with your marketing. You never have to guess if you ran a direct mail promotion correctly or not. Why? Because you either get orders or you don’t. It’s a pure blank white canvas of business opportunity – one of the last remaining vestiges of pure “winner take all” capitalism remaining.

With many other forms of media used in marketing, you cannot and will not know the true results of your efforts. For every one real estate investor (or agent) that knows precisely where their leads came from (and also: what the cost to get that lead was and how many leads they need to close a sale, lifetime value of customer) there are probably 1,000 that do not.

The one big thing most real estate investors miss the boat on when raising private money is that they think of getting private investors as a financing process.It’s not. Getting private money is a marketing process.

For those select few that understand this, the next step is implementation. And here’s how it usually goes: post on real estate message boards, blogs and online classifieds that they ‘need a private lending partner’. Ambitious investors may even get a website specifically for private money – but they will completely mess up this website. The site won’t talk about the benefits for investing in real estate passively. No. Their websites will basically be geared toward somebody who has been to the same bootcamps and other seminar training that they have. As you probably know, the response and ROI for these types of websites is pretty low.

So, this brings us back to one method (note: I did not say the only method) that has proven to work in marketing anything and everything for over 100 years: direct mail.

Here are the basics of using direct mail (the right way) to get private money…oh, also…please remember that there are legal and securities laws issues on marketing for private money that vary from state to state. It would be exhaustive and unproductive for me to go into all of this here. Just do the right thing and get a securities lawyer’s opinion and/or ongoing counsel when you get really serious about raising private money.

• Send a sales letter - a sales letter is just that: a letter you write to somebody where you enter into a conversation already going on in the prospects mind and show them how you have a cure for what ails them. Don’t use a lot of hype. Write for emotion and use enough logic to justify a prompt response (oh…and give a reason for prompt response, too!)
• Offer free information (not brochure or ‘credibility kit’) – either a free report/white paper or prospectus – Always remember that people like to buy – they do not like to be ’sold.’ I know this sounds like a philosophical argument two French guys had back in the 1700’s, but it’s very true with anything you want to market or sell. Your free information is what’s called a ’soft sell’. Learn to use and master this and you will get monster results.
• Use a #10 envelope with a live first class stamp or send FedEx – Many direct mail pieces fail not because the message was bad nor because the offer was bad nor because the list was bad – many of them fail because they intended reader did not get or open the envelope or package. Using a good old #10 or FedEx will cost more but the resulting response should easily overcome this extra cost
• Send follow up mailings (min. 3 mailings) – many direct mail promotions fail to yield a return on investment because the sender gives up if they don’t break even on the first mailing to the list. Show some persistence and send at least 3 mailings.
• Have a ‘backend’ sequence in place – if your call to action is a phone call, then make sure you have a business line, a receptionist (or virtual receptionist perhaps) and/or voice prompts
• Use a good mailing list – talk to a professional list broker and do not use ‘compiled’ lists whatever you do.

Whew!

Does that seem like a lot of work?

Well…it is, sort of. But as long as you remember the 80/20 rule (80% of the wealth is controlled by 20% of the people, 20% of your time drives 80% of your results) you should have no problem investing some time and a little bit of money where most of your competitors will not.

Earn Nightingale (founder of Nightingale-Conant) was one of the best inspirational speakers of all time. He was quoted as saying: “if you want to know how to become successful – and you have no other model to go by – just look at what most people are doing and…do the exact opposite.”

I couldn’t agree more. Especially when getting private investors to fund your deals.

-Happy Investing

You don’t see it coming – but it blindsides you nonetheless.

When you’re first raising private money to fund your real estate deals, it’s pretty tempting to grab at anything when someone says they’re interested in placing funds with you.

After all, you’ve spent some time, paid some dues and…finally…someone says “yes” I’m ready to invest.

But, then some interesting facts come out of the woodwork…

This “investor” needs to close really fast. They can only invest money for a short period of time (like 6 months). And, they want 20% on their money – flat rate (not annualized).

You’re stuck between a rock and a hard place: should you work with this person or not?

Before I answer that question, let’s look at what your ideal target investor should be like:

• Ready, willing and able to place funds
• Has seasoned funds to invest
• Does not have unreasonable expectations for rate of return
• Is an individual person or couple, not a professional investment company
• Is someone you don’t mind doing business with

I know this may seem like a high standard…but…being an entrepreneur and in business for yourself means YOU determine the terms and conditions which you want to do business. This means, thankfully, that you can choose to signal out and pursue the right people to develop relationships with. Relationships that are mutually beneficial.

If the 5 factors above do not line up with your prospective private lender, then something is off and you may end up regretting doing the deal with them.

Let’s break it down one-by-one:

The prospective private lender is not: “ready, willing and able”

Hopefully this one is easy. If the person you are talking to or corresponding with b/c they got in your marketing pipeline is not ready to invest, willing to invest with YOU nor has the funds to invest – it’s not a good recipe for success.

The prospective private lender doesn’t have seasoned funds to invest

In general, it’s not a good idea for you to have someone invest in a deal with borrowed money. Doing this introduces too many variables into the equation. You have to pay the investor who has to pay their lender. If something ever happens in the deal where payments to the lender must be delayed – such as a postponed sale closing, or if the interest rates on the lenders funds increase, you could be in for trouble.

The prospective private lender has unreasonable expectations for rate of return

If your lender wants to earn rates of return that are “out of this world” – such as those north of 14-15% or so, then I would be leery.Even though you may have a project that is profitable enough to pay these returns, there’s no need to pay them when you can get money for cheaper. It’s just more cash out of your pocket then you need to give. This is also a dead-giveaway that the other person has to crack a certain number, like if they are getting the funds from another source.

The prospective private lender is not an individual person or couple

Why should you rule out getting money from an institution? Maybe a private equity company? Simply put, these professional investors will dictate the terms and rules of the deal, and you’ll most often be put in the passenger seat – working for them. It’s just the facts. Put yourself in their shoes: what would you want? Most private money loans will come from those people who are happy to place funds in an effort to achieve good returns, diversify their portfolios and invest in someone they like and trust. This isn’t just a “homespun” thing either – Warren Buffet uses this strategy to this day, and he started it over 50 years ago.

The prospective private lender is not someone you would like to do business with

I can tell you from personal experience, no amount of money is worth a toxic business relationship. You don’t want to be constantly fighting or distracted from your chief focus because of a bad choice in private money lenders. You’ll have to use your gut instincts on this – but if the person gives you reason to pause or worry, or throws off the wrong signals, then you should think twice.

Now that we’ve laid down some ground rules, let’s go back to what we were discussing at the beginning: predatory private lenders.

These “private lenders” (in form, but not in substance) are looking for easy, targets to push high interest, short term money to. They are really hard money lenders in disguise. I often discuss at length the differences between private money and hard money. Please refer to my other writings on that subject.

If you stick to the ground rules that we just laid out, you won’t have to worry about predatory investors. You won’t have to worry about taking the wrong kind of money. You’ll get to do business on your own terms and with people that align with you.

It’s much better – and at least 10 time more profitable to do business this way.

-Happy Investing!

I’m continually working for that “one-call close”…but it has thus far eluded me. I’m not happy about it, but, it’s something I’m striving for.

A few days ago I was talking with a client and this subject came up. This person was wondering why he wasn’t getting a flood of interested private investors ready to throw money at him from his website. Going into the conversation more, I realized that the gentleman I was talking to had a lot of the private money game figured out. For instance, he was:

• Getting his message in front of people
• Getting his message in front of the “right” people
• Offering a competitive product
• Giving prospective investors a very good reason to contact him (soon!)

Everything looked pretty good, until we started discussing how he was sequencing his marketing.

Aha!

We stumbled upon a very critical – yet often overlooked – aspect of attracting private investors: the right marketing sequence.

In any business, your goal should be to have prospects contact you that are pre-motivated, pre-disposed and pre-conditioned to do business with you. Therefore, with private money, you want to have prospective investors contact you when they are pre-motivated, pre-disposed and pre-conditioned to place funds.

No sweat, right?

Not so fast!

First, it’s important to realize that marketing for private money is not going to be a “one-step” process (usually). It begins with lead generation, continues with proper follow-up and ends (or doesn’t end, rather) with a continual stream of continuity marketing (whether they place funds with you or not).

To better help you, if you’re serious about raising private money,  here are the questions you should be asking yourself:

1. What am I doing to generate private investor leads?

–Internet, word of mouth, mail, etc. How I am attracting people to my opportunity?

2. What am I doing once a lead comes in/how am I following up with leads?

–What kind of information am I giving them? How frequently am I communicating with them?

3. How am I handling/sifting/sorting prospective investors in various stages of the decision process?

–Qualifying/setting meetings, phone appointments, send PPM or prospectus, etc.

4. What kind of follow-up marketing am I doing?

–Once they invest, how am  I pursuing additional investment dollars from that individual and  how am I leveraging for referrals?

Once you break getting private lenders down into the most simple elements, it becomes easier and easier to get funding.

The investors decision making process works sort of like an assembly line. Most will see something that interests them. They will fit that interest to their goals and resources. They will then want to learn more about that particular opportunity and then begin the emotional/logical decision making process that leads them down the slide to placing private money with you.

Here are some more rules to live by:

• If people don’t know about your opportunity, how can you expect them to place funds with you?

• If people don’t know how your opportunity benefits them, how can you expect to get the money?

• If people don’t know why they should take advantage of your opportunity right now, how can you expect to get money quickly?

Ok, that’s a lot to digest for one day. More on this soon.

Happy Investing!

But, people still read newspapers. And perhaps more importantly, those in your “target market” for private money are probably newspaper readers (at least the Sunday paper).

So…

Should you ever advertise for private money using the newspaper?

I think there are a few determining factors that you must consider before pulling the trigger on something like this.

1. Your market
2. Your marketing
3. Securities laws

First let’s talk about your market.

If you don’t have a clearly defined target market for your investment opportunity, you’ll be wasting a great deal of time and money on advertising in the newspaper. A big part of this waste will come from: wrong ad copy, wrong ad positioning, wrong paper selection.

How you write your ad is critically important. If you cannot catch the readers attention and compel them to the action you want (lead generation in this case) then you are wasting your money. But you don’t just want any old reader…no…you want to signal out to your target market (those that have investable assets) that your message is for them.

Even if you get your ad copy somewhat decent,  if you don’t place your ad in the right part of the paper (it’s very easy to mess this up) then your response is going to be depressed. In addition, you may not even be selecting the right newspaper to place the ad in.

But let’s say you get this down: you have the right paper selection, good ad copy and the proper position in the paper.

Now it comes down to what exactly you are offering to anybody that calls. Are they calling you directly? Visiting a website? Calling a voice-mail box? What happens after they call? What kind of follow up marketing sequences do you have in place that will ensure a return on advertising investment?

Ok, let’s say that you have a fantastic marketing sequence in place and you also have a great ad, good paper and good placement.

Now, let’s talk about securities laws for private money for a minute. Of course, I’m not an attorney and what I’m saying here should never be construed as legal advise. You should retain a good securities attorney when you get super-serious about raising private money.

When you run an ad in a newspaper for private money, depending upon what you are offering in terms of investment, you may be making what’s called a “general solicitation.” This means, in the eyes of regulators, that you are trying to sell a security to the broad investing public.

And there are lots of laws in place that try to protect the investing public from securities solicitations that haven’t been at least reviewed by the SEC.

Is this a complete bummer?

I don’t think so. If you have a good opportunity and you know that you can deliver, then it may be worth pursuing. There’s nothing better then having your phone explode with leads from people who are ready, willing and able to place funds with you.

An important note: you have to be ready to do proper follow up marketing and securities laws compliance when you use bigger advertising. The worst thing you can do is let a bunch of hot leads sit for days and days. People want instant information. Give it to them.

Advertising for private money could be very profitable for you, even in spite of the small obstacles. Consider everything I’ve said here in addition to your own business goals and objective.

-Happy Investing!

Sometimes they do. Other times…well…let’s just say there’s a reason why they say “nail biter.”

Today I want to share a negotiating tactic with you that has been successful for me. Like most things that work in business, it’s more simple than complicated.

Bruce Lee, the great martial artist, was once quoted as saying: “It is not daily increase but daily decrease. The height of cultivation always runs to simplicity.”

Write that one down.

Onward…

Now, a response you may hear from a prospective private investor is something along the lines of: “I’m not sure.”

This can be a real killer. It can take the wind out of your sails. If you prepare for it ahead of time, you can prevent this momentum stealer. Here’s how…

What I have done in this specific situation is reply with: “Ok. Are you saying that you are comfortable with the investment, but just not sure about the amount?”

By saying this, I’ve accomplished a few important things. First of all, I verbally presumed that they are “in” but just trying to figure out the right amount. At this point in the conversation, the investor may or may not have mentally committed to the deal. But, by my saying this, the investor can only think that they gave every signal that they were interested.

The other thing this phrase will do is it will let you know for sure if the investor is going to raise additional objections. They might stop you and say: “no. I’m not quite comfortable with the investment. Can  you explain more about ___.” This is a good thing. Remember, if prospective investors raise objections, it means that they are emotionally interested (which is critical) but they are struggling to justify their desire to invest with logic. Worry about it when no objections are brought up.

Another very important development will occur when you say: “…so, you’re comfortable with the investment but not with the amount?” What will happen is, you are giving the investor a chance to get in a little bit lighter then your (hopefully) already stated investment mimimum.

You should always tell your investors that there is a minimum figure to invest in your deals. Right now that number is $100k for me. It used to be $50k, then it was $75k and then it moved to $100k. It may go up again in the near future. By setting that bar, you are signaling that people shouldn’t waste your time if they can’t really place the funds you require to complete your business objectives.

When you set a minimum amount up front, but indicate that you might make an exception for the new investor, you can gain an edge. If the investor says “yes, I’m interested but just not sure about the $50k investment…” you can immediately counter back by saying: “Ok, Mr./Mrs. Investor – what amount would you be comfortable investing?”

Now, you’ve won.

They’ve already said “yes.” It’s very psychologically difficult for them to break the pace now and reverse position. In fact, I’ve never had it happen to me.

If this sounds like too much of a “rough and tumble” negotiating tactic to you, sorry. Sometimes it really comes down to these situations and you have to have some tools in your arsenal to capitalize. You rarely get a second chance with a “hot” investor. Don’t take on an adversarial role, but stick to your guns and remember your goal: to get the funding.

-Happy Investing

I’d like to shoot the person that invented the term.

But it’s here with us to stay, so in that case, we might as well figure out a way to deal with it. It just seems like everywhere I turn around, somebody has a joint-venture for me. Most of these so called joint-ventures are one-sided: like I take all the risk and the person proposing the JV has all the upside. Here’s a good one for you:

“Adam, how about I find a deal for you and you bring the money to fund the deal from your private investors. You guys can manage and rehab the deal and we’ll split the profits?”

Whoa! Where can I sign up?…..NOT! (i love bringing that term back whenever I can)

It’s more like: “how fast can I run the other way!” Why? Because this isn’t a “joint venture” and it’s not something I’m even remotely interested in. So, here’s what I told this person:

“Ok. Tell you what: you bring me a deal. I will either A: pay you a commission or finders fee for the deal or B: purchase the property from you wholesale.”

Of course, the other persons interest waned considerably. This tells me one thing – they were interested in making a bunch of money for not a lot of value added. This just doesn’t work.

A joint-venture only meets the definition if both parties bring considerable value to the table and share in the profits proportionately with the value they contribute. Otherwise, it becomes a “dis-jointed” venture.

Now, I’m going to tell you the right way to approach these things when it comes to private money.

Maybe you think that by telling a prospective private investor that you’d like to do a “joint venture” with them that they will be more enticed to place funds with you. This can really mess things up in your relationship with the investor. They may think that they are equal business partners with you. Next thing you know, the investor wants to help you pick out the tile for the bathroom rehab. Not good.

In addition to this, some people think they can get around securities laws by saying that their private money investor is a joint venture partner, and thus they do not have to comply with the securities laws.

Not true.

Unless your private investor is a materially contributing partner on the deal (meaning if their profits can depend upon their actions) then you must still fill out the required securities filings/disclosures.

It can bite you in the behind two ways if you are running around proposing joint ventures that really aren’t.

Keep it nice and clear and concise: you’re looking for an investor, not a partner. Well, maybe you are looking for a partner, but I really caution you against letting other people in on making business decisions with you or for you. Never forget the reason YOU are in business – and that is to make money.

Be very leery of anybody proposing a joint venture to you. Make sure you clearly understand what each party is bringing to the table. If you don’t have the market knowledge or connections to get the best deals, but you can raise the cash and handle the rehab, be sure that any joint venture you enter into clearly spells out how much you are getting and what the other person is getting.

Of course, there are relative and absolute dollar considerations here. If you have the potential to make a massive profit on a deal (like six figures or more) and the other person is really proposing something that you’d be dumb to pass up, then don’t pass it up! Don’t be penny-wise and pound foolish. Just make sure that you know what you’re getting into. Spell all the details out on paper before spending time or money. Set up a good operating agreement or partnership agreement. Watch the dollars.

-Happy Investing

As I’ve said before, you should always look at two sides of the private money coin: lenders and equity investors.

If you only think in terms of private lenders, you’ll be limiting yourself to only those people who want to loan money secured by real estate for a fixed return. I guess that’s not bad, right?

Wrong!

Doing this will severely limit the amount of private money you can get.

Hear me out on this: there’s a whole big world of people with money out there. Real big. In fact, it would downright shock you if you knew how many people would invest money with you – if only you went about it the right way.

And…a big thing you should know is that there are a lot of people with money who want more than a secured, fixed rate of return. They want a “piece of the action.” They want to share in the profits and cash flows of a deal. They want the thrill of potentially making lots and lots of moolah. So, with this being the case what do most real estate investors do?

They continue to offer only secured private mortgage loans!

This is a certain path to mediocrity and not hitting your money-raising goals. Why? because you aren’t giving people what they want!

Let me repeat a piece of advice that took me a long time and a lot of beating my head against the wall to figure out: getting private money is a marketing process, not a financing process. You have present an opportunity that is so irresistible that people cannot help but fall over themselves to write you a check. And, to do this means that you have to….

Give people what they want!

And some people will want a piece of the action.

Don’t believe me? Ok, here’s what a recent deal of mine looked like:

Newer build SFH (single family house)
2,000 sq. ft
Bank Owned
Buy price: $85k
Rehab: $25k
Private Investor funds: $115k (purchase + rehab + $5k holding costs)
After-repair value: $160k
Estimated Profit (after selling costs): $40k
Holding time: 90 days
Investor split: $20k
Investor ROI: 17.3% on this deal – equates to annualized return of 69%
My company ROI: = infinity

Are you wondering why I would give up so much of the profit on a deal? I mean, why wouldn’t I just get a secured lender at 10% annualized interest rate and

The answer to this is EASY!

You see, with the current real estate market and the available opportunities, I can have my cake and eat it too!

I don’t need to ‘ration’ my private investors. I will do any and every deal that makes sense. Why not just do 2 deals instead of 1? When it comes to real estate investing and private money, it’s not always 1+1 = 2. Sometimes, it’s 1+1 = 4.

Brining in as much private money as makes sense will also benefit my business long term. I know for a fact that the investors that funded the above deal in the example have more money to invest. If I can get their money out so that it makes sense, then why not do it? They’ll just invest more for other (bigger) deals and then refer family and friends. Also, a $20k profit isn’t anything to sneeze at. It’s not what I consider a “home-run” but it’s not a throw-away either.

But where is all this money you’re talking about?

You know, speaking of that, something weird just happened to me the other day. I found out my neighbor is sitting on a pile of money. I don’t know if they are a millionaire or not, but it turns out that this person has lived very frugally and invested fairly wisely over the past 30 years or so. Their house is paid off, no car loans. They definitely have $50k or $100k they could throw at one of my deals.

I encourage you to read The Millionaire Next Door by Thomas Stanley and William Danko. It will really open your eyes.

Even though the national economy is down right now, there are still more millionaires today then there were 5 years ago. And, there were definitely more millionaires 5 years ago then the 5 years before that.

If you open your eyes, and kick your marketing up a notch, you’ll see that there are plenty of available funds for you to tap into.

Think bigger and think more about giving people options to share in your profit and cash flow upside. You will attract far more investors that way.

Give ‘em what they want!

-Happy Investing

Why is this so interesting?

Because it has a lot to do with how successful you will be when pitching your private money deal.

(yes, I use the term “pitch” because….well…that’s pretty much what it is)

For anybody that’s had any sales training, one of the first and most important things you learn is that the person you are trying to sell to doesn’t care about you (using the term “I) a whole heck of a lot. The prospect only cares about “what’s in it for me.” Thus, it is commonly said that most people tune into radio station WIIFM (what’s in it for me).

If you pay attention during the next conversation you have today, be conscious of how many times the other person uses the word “I”. This is a big indicator about how they see things – and how they prioritize in their head. On  many occasions a salesperson will call on me from a major company, looking to gain business and there just doesn’t seem to be anything on the top of the salespersons mind other then themselves or their company and how great their company is

What about me?!

When you are raising private money, it’s not enough to know the numbers of the deal, the tax implications or the securities laws. Those things are all important, but they don’t mean a darn thing if you can’t get somebody to agree to place funds with you.

People really want to know: what’s in it for me?

When the president makes an address, the American public wants to know: what’s in this for me?! Politicians that promise big benefits to their constituents are usually the ones that get elected.

Similarly, when you present a private money deal, you must show your investor what’s in it for them. Don’t fall into the trap of showing all the features of the deal and not highlighting the benefits. For instance, discussing the market comparables and rate of return has a role, but those things are not the benefit for the investor. The benefit for the investor is: “high level of principal protection so you never have to worry if your funds are underwater,” and “your money will double in 5 years so you can easily afford that second home without borrowing…”, etc.

To become successful in raising private money, you should always think and speak in terms of benefit to your investors. Connect the dots for them. Talking about how great you are at finding deals and how well-oiled your house selling system is doesn’t mean a lot to your investors unless and until you convey those as tangible benefits for them. Even high net worth investors who are savvy will want to know WIIFM.

What you should do right now is make a bullet list of the benefits (not the features) of investing with you for your private money investors. Then, commit this to memory and then slowly let it marinate in your mind. Condition yourself to communicate with prospective investors with a “you” approach instead of an “I” approach.

Here are some to get you started:

• 12% rate of return means your money will double every five years like clockwork
• secured mortgage position gives you the peace of mind knowing your principal is well protected
• investing in a tangible asset you can look at, touch and feel – not just a piece of paper or blip on a computer screen

Take some time and come up with at least 7-10 “benefits” of placing funds with you.And, remember to keep your prospective investors tuned into WIIFM.

-Happy Investing

Those aren’t the words you want to hear after you’ve just made your private money “pitch.” The words you want to hear are (in order)

• Can I write you a check right now?
• Is there any way you could take more money and invest it for me?
• Would it be Ok if I told some of my friends about you who are looking for this type thing and have money to invest?

If you want to hear the those three questions (or similar ones) and not “is that it?” or “what else do you have?” then this will be an important message.

You see, most people, for whatever reason, don’t “leave it all on the field” in any aspect of their lives – let alone their businesses.

A long time ago, my football coach used to tell us that we had to “leave everything on the field.” Before each game, he would get us pumped up. We were prepared. The game plan was in place…but he always took the time to tell us that we had only once chance to play this game because we had one life and that we must leave every ounce of energy, passion, enthusiasm and drop of willpower out on the field. In other words…

“Don’t hold anything in reserve, boys”

At the time, this message didn’t sink in much. I played as hard as I could. We won some games. Lost some games. It was fun. But it wasn’t until years later that it sunk into my brain what the coaches were trying to teach us. It wasn’t until I was sitting in front of a potential private investor one day and, at the end of my ‘pitch’, got a “is that all?” response.

Why did I get this response?

Again, I was a slow learner. At the time, I didn’t know what I had done wrong. So, I stupidly told the potential investor that “yes, that’s about it” and we then parted ways. Never to see each other again.

A few months later, I was really in need of some private money. The banks had pretty much shut me out and my lines of credit were gone. I absolutely could not leave the meeting with this investor without a commitment to invest.  Near the end of my presentation, I was again asked the question: “what else is there?”

This time I replied: “well, there are a few more details to go through, but I need to know your level of interest before we go further. Are you indeed interested in placing funds with me on this deal?”

To which they replied “yes.”

I then continued the meeting. I got the investment.

Maybe you think the difference is very subtle here – but it’s not. It’s substantial. Like the Grand Canyon. Here’s why…

You can never assume that you’ll have another shot with a private investor when you sit down with them (or present to a group of investors).  Therefore you must treat the meeting like it may be the last one you’ll get. Don’t leave anything out. Throw all your preparation, knowledge and enthusiasm on the table.

The first time I was asked “is that all?” I just figured that I wouldn’t push it and just schedule another meeting.

That “other meeting” never happened. Most of the time they never do.

You must make every attempt to close the deal with the investor the first time you have a formal meeting with them. Never assume you’ll get another chance.

Don’t leave out any facts, figures, emotional appeals. Put everything into it.

As I said before, most people lead lives where they always have a ‘reserve’ – they never empty their tank and go after something with an abandon. There’s always a little hesitancy to not push all your chips into the pot. Believe me, when it comes to private money, this is a mistake.

Make your best argument. Put your best foot forward. Leave every ounce of your will on the table with the investor. Don’t come across as desperate or needy, but enthusiastic, confident and thorough will win you far more deals than any other approach.

-Happy Investing

I thought about it for a minute.

Then, I thought about it for another minute.

And then another.

Until there was an uncomfortable silence in the room.

Soon the man who asked the question cleared his throat: “uh-hm…”. This pulled my attention from deep thought back over to him. During those few moments of silence, I reflected upon the private money I had raised (over seven figures, multiple times) and the deals I had done with private investors (hundreds) and I searched high and low the far reaches of my mind a good answer to his question.

And I came up blank.

But, I didn’t continue to sit in silence. Something d hit me. Like a ton of bricks. One of those flashes of lightening you get only when your brain is firing on all cylinders. And I want to share that with you today. Because the answer to this “burning question” is so valuable that it just might save you a couple months of weeping and teeth-knashing…

Here’s what I replied: “can you tell me the one way to get a great deal on an investment property?”

The man thought for a while, the audience’s attention shifting back and forth from him to me…and back again.

Finally he said: “No. You could get a deal off of the MLS, from your own marketing, a website, newspaper ad, and other ways, I suppose.”

This was a good answer. Scratch that – it was a GREAT answer. And, entirely true. There was no ‘one magic way’ to get a great deal on an investment property. But, there were several proven techniques that made it all but impossible to not find a good deal by using them.

Here’s where it gets interesting: although many real estate investors will agree that there is more than one way to skin a cat when it comes to finding and selling properties, they seem to be pretty darn sure there is only one way to get private money.

And, so they keep searching for that one way.

Which usually ends up in vain.

You see, getting private money relies on the same techniques and principles that you use to find good real estate deals. If somebody asked you where the good deals were in this market, you might tell them “everywhere! You could go here, there, insert place <here>.

To find good deals, consistently, you need a solid, proven multi-step marketing plan.

It might look like this:

• Meet local real estate “players”
• Build relationship with buyers agents & listing agents
• Follow up continually and let these players know how working with you will be good for them
• Send postcards or letters to motivated sellers of properties identified from public record search or lead generation advertising
• Follow up consistently with direct marketing to sellers
• Set bandit signs out on weekends to generate leads to direct call #
• Etc.

What you would do if you wanted a continual flow of deals is you would implement a system that would cast as wide a net as possible. If you really wanted to eat and had the option of fishing with a bamboo pole, string, and worm versus a huge net that could drag the entire lake, which would you choose?

I hope you said the net. Because that’s what it takes to generate private money – so much private money that you won’t ever have to worry about how you’re going to close a deal ever again. You won’t have to worry about coming up with the equity to buy a large commercial building.

There are a lot of ways to ‘blow it’ with private money

And, the first and biggest way  you can blow it is to never give yourself the chance to raise any. If you rely solely on posting your deals up on internet websites and praying for a response; if you rely solely on talking to a few people at a networking group; if you rely solely on putting up a website (which probably doesn’t have the right response mechanisms in place) ; if you think Facebook is your private money getting savior, well then…

You’re gonna be very disappointed.

Maybe you’ll get lucky (hey, it’s better to be lucky then good sometimes). But, it will be tough to make this work for you on a consistent basis. It would be akin to opening up a pizza restaurant and then saying the only way that  you were going to rely on getting customers is with radio advertising.

Not a good idea.

In your quest for the ‘one’ silver bullet solution to getting private money, you should really think about fishing with a net and maybe some dynamite instead of just a bamboo pole and a string.

Think of private money the same way you do real estate investment deals. I guarantee you’ll be pleased with the results.

-Happy Investing

What I want to focus on is: taking care of private investors once you have them.

It’s very important that you do this the right way. In fact, it’s almost just as important what you do after a person places funds with you then what you do before.

Here’s why: your single biggest source of additional capital as you grow your business will be…your existing private investors. In fact, if you do it the right way, after you have 5 or 6 private investors (and it usually doesn’t matter how much they have invested) you should not have to spend much money or time with outside marketing for private money.

You should be able to raise as much private money as you need from referrals, testimonials and additional capital invested from your existing investor base.

Of course, you may have to go outside again with your marketing if  you want to raise $5MM or $10MM blocks of capital, but for real estate investors that want to make a few hundred grand per year flipping properties or with cash flow – a solid investor base to start and then working off that base will pay huge dividends.

With that in mind, here are three great ways to build your relationship with a private investor after they place funds with you:

1. Regular correspondence – at a bear minimum, you should send your private investors a quarterly statement which details for them how the investment in your company is performing. Show the investment amount, interest accrued or paid to date, year-over-year return on investment. Make this statement look and feel professional. Always include a personal note with the statement that re-affirms the investors decision to place funds with you. You can also use the statement to plant the seed for referrals.
2. Gifts – pretty much a no-brainer that you should send: birthday, Christmas and anniversary gifts to your private investors. Spending maybe a few hundred extra bucks per year is well worth the good will and special feeling that this will create in your private investors. Remember: you don’t want people to just “think favorably” about you – you want stark raving lunatic fans that scream about you to everyone at the top of their lungs. Imagine this: you’re private investor is having a party at their house. A guest notices a nice bouquet of flowers or thoughtful gift that you sent them and asks about it. Your investor is quick to pipe up that they got it from their real estate investment company. They go on to tell their guest that they get treated like gold and they get great, hassle free returns on their money. Think of the difference that could make…
3. Outings – In terms of relationship building, nothing is more important than some good face time. Several times per year, perhaps 3 or 4 times per year, you should spend an evening or a good part of a day with your private investor and/or their spouse. Take them to a sporting event. Invite them to a long lunch. Take them out to a fancy dinner. Face time is very important. You don’t have to talk about business the entire time. In fact, it’s almost better if you don’t. Let them see that you’re a complete person and they’ll fall more in love with you. People feel good about investing and doing business with people they like and trust. Why not go as far as you can go toward building trust at rapport?

These are only three ways – there are many others – that you can use to build relationships with private investors. Be creative and original. Sending movie theater or restaurant gift certificates is good, but a personal touch and learning what people like will help you stand out more.

You should always strive to build better and better rapport. This will have them sending referrals to you without even asking and, thus, speed up your private money raising.

-Happy Investing

Maybe it’s the goal of bigger profits. Maybe getting more respect and having every one of your offers or LOI’s taken seriously.

Or, maybe…just maybe…you like the thought of not having to crawl on your hands and knees and hope and pray that the mortgage gods of the bailed out banking industry will arbitrarily rule in your favor.

Maybe it’s all of the above.

Whatever your prime motivation is for raising private money, there cannot be enough said about the importance of building credibility.

Credibility is what makes the potential investor listen, really listen, to your offer and give it full consideration. Building unshakable credibility is absolutely vital when it comes to differentiating what you are offering vs. what other people vying for your private investors dollars are offering.

[don't tell me you forgot that a lot of other folks are pursuing your private investors' funds, did you? No? Ok, good...]

Back it up

Businesses of all shapes and sizes also fight the same credibility battle. Any time a claim is made (from pizza delivery to stain removal) the customer automatically puts up their guard. Because of all the advertising and marketing messages out there, people are naturally skeptical of any claim.

Bottom line: You have to back up any claim you make.

For instance: if you claim you can successful place a persons funds and successfully repay them with interest, you should never take for granted that you have to back up this claim.

Just because “the deal is good” is not enough.

Showing them your business plan or offering documents is a good start, mandatory, but sometimes that won’t even be enough.

However, no matter how much you say about you, it won’t matter as much as…

What other people have to say about you.

I’m talking about the irrefutable power of the testimonial.

The Power of Other People’s Words

Ok. That’s a pretty big private money marketing secret I just let out of the bag, so let’s dig a little further in. I want to make sure you fully understand what I’m driving at…

If you tell a potential private lender that you’re a good person, that they should do business with you, it will mean something to them. They will take it under advisement. However..

if somebody else (a 3rd party) says that you’re a good person and that people should do business with you (or invest money with you) the impact on the potential private investor is immeasurable. And, your credibility will SKYROCKET.

So, if you already have had a successful relationship with a private lender, you should create a way to approach them about giving you a testimonial. Do this right now while you’re thinking about it.

“BUT ADAM, I NEVER HAD A PRIVATE LENDER! I AM TRYING TO GET MY FIRST ONE!”

Ok. Ok. I hear you.But, guess what?

You can still get very valuable testimonials!

And this can help you quickly get private money!

That’s right. You can get testimonials from anybody that you’ve done business with that will say good things about you. And, here’s the really awesome part: you can get lots of testimonials because you are also promoting the other persons business who is giving you the testimonial!

It’s a total win/win.

Imagine the look on a skeptical private lenders face when they see a couple of printed pages with glowing reviews about doing business with you? Picture the skepticism melting away when you send them a letter with a people raving about how great you are.

You don’t even have to talk yourself up any more. Let other people do the selling for you!

[here's a big $ million $ tip: you should add a page to your private money focused website that features testimonials]

Man, I’m excited just writing this!

This is something that you can put to work right away in your business to tremendous effect. In fact, if you don’t take the time to do it you are just short-changing yourself in a major way.

-Happy Investing!

No.

100% real. Time tested. Battle tested.

You see…

Every time you communicate in any way with a private investor, you must always be working toward closing the deal.

You want to get the max bang for your buck. You never a second chance to make a first impression.

And there’s always a fine line to walk when talking to potential private investors: between giving them the broad 30,000 ft. view or going through minute specifics, such as the deal structure and closing mechanics….

A lot of real estate investors will err on the side of staying ‘high level’ in their discussions. Not wanting to bog down the private investor with too much detail and scare them away. After all, nobody likes to see the other person’s eyes glass over and roll back in their head due to boredom.

On many occasions I have found myself walking that fine line, trying to get a good read on what points would most relevant to the investor while still getting them the information they need to make a decision.

It’s not easy and it’s something that you’re going to have to get a feel for once your in the conversation or putting your marketing piece together.

However, I do have a very helpful tip for you that may save you a lot of time and get you more private money. Here it is:

Use specifics when describing the 30,000 ft view.

Let me put this in another way:

If you don’t communicate the specifics of what you do and what you offer (in the right way) you will risk losing the investor from the beginning.

What I mean is this: as you explain your business to the investor (which you should always do no matter what – never assume anything) is that you provide  specific

Specifics = credibility.

And credibility is probably the single most important aspect of winning the private money game.

Let’s say your business is buying and selling single family houses. You could describe your business as follows:

“We buy, renovate and sell single family houses. We acquire bargain deals and quickly rehab them and sell for profit.”

[side note: I see real estate investors using this as their company tag line all the time....do yourself a favor and don't use the same one every investor is using. try to put your USP - unique selling proposition - in your 'tagline']

A better way to describe your business is to use specifics like this.

“We buy 3 -4 bedroom homes in family neighborhoods. Lots of nice ranches and bungalow styles. Mostly 1,500 to 2,00 sq. feet. We look for neighborhoods where we see lots of kids playing and well manicured yards. The kind of place you could see yourself waking up in the morning and waving to your neighbor without feeling the least bit awkward. Little gems – diamonds that need to be polished with a thorough renovation to be ready for a nice family to move in and make it their home.”

Do you see the difference?

I’m sure you do. It’s not a subtle difference at all.

What I’m trying to say is that you must paint a word picture for your private investors – and specifics are a part of that.

There have been extensive advertising studies done where the results of one advertisement are compared with the other for the same product (called an A/B test) and it is routinely found that the more descriptive advertising copy is what sells the best – often by an overwhelming ratio. 4/1 or 5/1 is not uncommon.

Applying this to raising private money, you must consciously build additional credibility for yourself and your business. And using “specificity” to do this will add a huge boost to your bottom line result. Here’s why:

The most specific you are, the more the dots are connected for the investors. As I mentioned earlier, you can’t assume your investors know anything about real estate investors or private money. And, you especially can’t assume that they know the in’s and out’s of your particular business model…

So, the more you spell out in details (not mind-numbing details, but interesting and relevant details that paint a word picture) what it is you do and what it is you want, the more successful you will be.

If you’re borrowing private money in the form of secured mortgages, paint the picture like this:

“…private investors have the comfort of full security in their investment – their principal is protected by a time tested legal document used for centuries by wealthy banks and lenders to reduce their risk and ensure repayment- a mortgage….” and you can go on to explain a little bit more about how the mortgage would work, etc.

Don’t short-change your description. You’ll just end up short-changing your results.

-Happy Investing

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.