How do you get people with money to invest in your property projects?
You have decided to go into property. You have chosen a strategy and an area and off you go. Soon you discover a fundamental property truth - no matter how much money you start with, whether it is £40,000, £400,000 or £4m, eventually you run out of money to fund your property projects.
My son and I found this out early. We started buying Buy to Let and HMOs in South Wales and were fortunate that at that time we could buy at deep discounts.
When we had refurbished and refinanced we were able to pull most of our cash out of each project. However, as the market firmed we had to leave more money in each project and we ran out of money.
This left us with a stark choice, either find people with money to invest in our projects or stop.
We were motivated to succeed, built relationships fast and over a 14 month period we raised £1m.
Here is the key question we learnt to address.
What is important to a potential Investor?
The most fundamental thing to understand about attracting property investment is what goes on in a potential investor’s head. Learn this and you are on the way to successful joint ventures. If you don’t you will wonder why other property people are getting money from investors and not you.
Here are the key questions that potential investors ask – either to themselves or you:
1. What’s the opportunity?
An obvious question. You need to be able to describe the project succinctly. You must paint a clear picture before and after and be able to show how you add value to the project (whether it be refurbishment, development, title split or whatever).
2. How much money will I make?
Another obvious question. You need to be able to show at a high-level the project costs, revenue and profit as well. You also need to show how much money you are looking for from an investor, the return on investment and timescale.
3. When do I get my money (and profit) back?
This can be crucial. They need to know when the money will be repaid. You need a clear and realistic view about project timescales, the different elements (e.g. refurbishment, selling) and show you have enough technical and market knowledge that these timescales are reasonable.
4. Why you?
This is where you show off your USP – YOU! People will only invest with people they trust. It takes time to build a relationship and you need to show why you are credible and why they should have confidence in you.
Credibility is showing that you have the expertise to find the right property, complete the project and sell/exit from the project profitably.
Confidence is showing that you have the right personal and business skills to bring the project to fruition.
5. What can go wrong?
This and the previous question are the two most important questions, often left unsaid. How you answer this question that will most likely determine success in getting a potential investor to fund your project.
Property success is all about managing risk. Every property project has an element of risk associated with it. Many investors are risk averse as it is their money that’s at risk! They want to know that you have thought through all the potential risks and have taken steps to mitigate them.
When I am talking to potential investors I always raise this question early in the discussion, and take them through all the risks (and mitigation steps). This way I show I have thought the project through thoroughly and understand how to manage the risks associated with the project. It increases my credibility and their confidence in me.
In summary, getting potential investors to fund your property projects is all about getting them to trust you.
In my 2-day course Attracting Property Investment I take attendees through my 5-step Attracting Property Investment System. We cover where to find potential investors, how to engage with them and build the right relationships; how to present a proposal and find the right joint venture agreement.