If you're interested in raising money for real estate investment opportunities, it's important to understand why people invest passively. Don't worry, we've got you covered!
Before starting the process of raising over 1,000,000 for an apartment syndication deal, I thought people would invest in my deal primarily for the returns, whether cash-on-cash returns, internal rate of return, equity multiple, or simply an annual amount. Silly me! While returns are necessary, they're not the most important factor. People invest based on trust. They trust you as a person and as a businessperson. They trust you with their money because they know you or people who know you and can vouch for you.
If you want to successfully raise real estate investment capital, you need to gain potential investors' trust. Here are three ways to get started:
1. Time
Establishing a relationship with investors takes time, but don't worry, you got this! For your first syndicated deal, your investors will most likely have known you for at least a couple of years. You don't yet have a track record. Once you establish one, it will be easier to get strangers to invest with you because of your proven track record.
The more expertise you have (see way #2 below), the less time you'll need to establish relationships with those who provide real estate investment capital.
2. Expertise
The more expertise you can demonstrate, the easier it is to raise money. BUT, WAIT. There's a catch.
You must demonstrate your expertise in a way your potential investor understands. Your knowledge is irrelevant. What's important is what's relevant to your investors and how you communicate it to them.
A doctor needs information communicated differently than an engineer, a small business owner, or someone who has invested in real estate before. Your success lies in recognizing how to communicate the information to each audience based on their background and needs.
You can display expertise even if you haven't done the specific thing you're raising money for. Another way to build credibility as an expert (and gain more real estate investment capital) is to create a thought leadership platform. For example, Kathy Fettke leveraged her thought leadership platform, a podcast, to raise $5 million in one week! Other platforms besides a podcast can be a blog, a YouTube channel, a newsletter, an ebook, or a meetup, but there are numerous other ways to become a thought leader. Be creative and find something that complements your strengths, unique abilities, and of course, that you like to do!
3. Personal Connection
The idea that people only invest with their analytical mind is false. We invest with emotion. We go in with preconceived notions and tend to look for things that confirm those notions.
Try this exercise: look around your room and, for the next 30 seconds, find everything that's red. Look red. Find red. Look red. Find red.
Now, write down all the things you saw in the room that are blue.
While looking for red, you probably noticed things that were reddish-brown or orange-ish red but counted them as red. We don't find things we're not looking for.
The point is we find what we seek. Those who provide real estate investment capital do the same thing. If they have a preconceived notion about you and the investment, they'll look for ways to confirm it. So, it's important to establish a solid personal connection with them.
You can do this by finding out what they care about and seeing if you can align with that in a genuine way. If you don't know what they care about, ask them this magic question:
"What's been the highlight of your week (or weekend)?"
That will uncover some things that are top-of-mind for them. They might say "making a business transaction," which will tell you that it's important to focus on the numbers and profitability. Or, they might say, "finally being able to get away with my family," which will indicate that time is precious, and you should emphasize the "passive investment angle" with them.