6-Step Process to Successfully Raise Capital for Real Estate

One of the biggest questions new real estate sponsors have been how to start raising capital for real estate deals.

Step 1: Know Your Investment Capital Options

There are two main types of investment capital for real estate: debt and equity. Debt capital is borrowed money that must be repaid with interest, while equity capital is an investment in the property itself.

Debt Capital
Debt capital is a good option for real estate investors who don’t have a lot of cash on hand. It can be used to finance the purchase of a property, as well as renovations and other expenses.

There are a few different types of debt capital available to real estate investors, including:
Hard money loans: Hard money loans are short-term loans with high interest rates. They are typically used to finance the purchase of a property that needs to be renovated or flipped.

Conventional loans: Conventional loans are longer-term loans with lower interest rates. They are typically used to finance the purchase of a property that will be used for long-term rental income.

SBA loans: SBA loans are government-guaranteed loans that are available to small businesses. They can be used to finance the purchase of a property, as well as other business expenses.

Equity Capital
Equity capital is a good option for real estate investors who have a lot of cash on hand or who can get investors to contribute to their deals. It can be used to purchase properties outright, as well as for renovations and other expenses.

There are a few different ways to raise equity capital for real estate, including:
Self-funding: This is the most common way to raise equity capital. It simply means using your own money to fund your real estate investments.

Partnerships: Partnerships are a good way to raise equity capital from other investors. You can partner with family, friends, or other real estate investors.

Crowdfunding: Crowdfunding is a way to raise money from a large number of small investors. There are a number of different crowdfunding platforms that can be used to raise money for real estate investments.

Step 2: Explore Various Sources of Private Money

Once you know what type of investment capital you need, you can start exploring different sources of private money. Some of the most common sources of private money for real estate investors include:
Business partners: Business partners are a great source of private money for real estate investors. They can provide you with the capital you need to fund your deals, as well as the expertise and experience to help you succeed.

Peer-to-peer lending platforms: Peer-to-peer lending platforms allow you to borrow money from other individuals. This can be a good option for real estate investors who don’t have a lot of collateral or who have bad credit.

Real estate crowdfunding platforms: Real estate crowdfunding platforms allow you to raise money from a large number of small investors. This can be a good option for real estate investors who are looking to fund larger deals.
Family, friends, or colleagues: Family, friends, and colleagues can be a great source of private money for real estate investors. They are typically more willing to lend money to you than strangers, and they may be more understanding if you run into problems with your investments.

Reputable hard money lenders: Hard money lenders are a good option for real estate investors who need quick access to capital. They typically charge higher interest rates than traditional lenders, but they may be more willing to lend money to real estate investors who have a good track record.

Step 3: Meet Money Partners

Once you have identified a few potential sources of private money, you need to start meeting with them to discuss your investment opportunities. This is an important step in the process, as it will allow you to build relationships with potential money partners and get a sense of whether or not they are a good fit for your business.
When meeting with potential money partners, be prepared to discuss your investment strategy, your financial projections, and your track record. You should also be prepared to answer any questions they may have.

Step 4: Address Lender Priorities (the 6 P’s)

Private money lenders have specific priorities when considering investment opportunities. These priorities are often referred to as the 6 P’s:
Protect their capital: Private money lenders want to make sure that their investment is safe. This means that they will want to see collateral backing the loan, as well as conservative financial projections.
Promise realistic returns: Private money lenders want to make a profit on their investments. This means that they will want to see realistic financial projections that show the potential for high returns.

Step 5: Provide Your Track Record

Of course, most investors expect to see a proven track record. They want to know that you can deliver on your plans. If you don’t have direct experience in real estate investing, what other relevant experience do you have or who else can you partner with?  Have your portfolio ready to go with your successes on top.  You’ve got to have the numbers to prove yourself.

Step 6: Promote Relationship Building

Surprisingly – or perhaps not so surprising – having a personal relationship between both investing parties trumps the rest of the qualifications.  So how can you build more authentic relationships or find like-minded individuals – whom you might already know – that might want to work with you? This is one of the most important habits to acquire as a real estate investor. Try attending a local networking event to get your face out there.  Building and maintaining relationships is necessary if you want to discover a potential money partner and achieve success.

However, the key to building successful partnerships with private money lenders lies in meeting their priorities, commonly known as the 6 P’s: protecting their capital by providing collateral and conservative financial projections, and promising realistic returns through sound investment strategies and achievable financial forecasts. By following these steps and understanding the intricacies of investment capital options and private money sources, real estate investors can increase their chances of securing the necessary funding for their ventures and pave the way for successful and profitable investments in the real estate market.