There are many people who picture themselves as the owner of a real estate company. And to your surprise this can become reality if you are passionate enough. All you need is adequate knowledge about real estate, due diligence, patience and needless to say, capital. Which makes ‘how to raise capital for real estate’ a reasonable question.
Housing sector is flourishing. This development is alluring more people to invest in real estate. As they seek financial freedom, people are searching for different ways to make money. Sectors like mutual funds, stock market and real estate are some of the preferred platforms.
REAL ESTATE INVESTMENT CAPITAL
Money required to fund the real estate ventures is investment capital. This money is used to cover construction cost, renovation cost, cost to acquire a property, upfront cost and other extra costs. In general, investment capital can be of two kinds:
Debt– Here the investment is from hard money lenders like banks. It may require interest payment. They don’t have a say in ownership.
Equity– They are private money lenders. They only invest if they find a deal profitable. Money in this is obtained by selling ownership in the property or business.
HOW TO ATTRACT INVESTORS
Convincing investors to fund for the real estate venture is not a child’s play. At times you may find it difficult to raise capital for real estate. As before earning money you have to earn trust. So what should you do to raise capital for real estate? Follow these steps:
- Ensure the investors that you will protect their capital
- Claim for realistic returns. Always promise for the estimated return possible.
- You must sound appealing to the investors. Try hard to prove your potential.
- Manage to procure a worthy deal.
- Make an attractive track record and show it to the investors.
- Build trust and healthy relationships with the investors. Keep it neither too professional nor too personal.
HOW TO RAISE CAPITAL FOR REAL ESTATE?
You can always save money to buy a property but it is not possible to sponsor for all of your costs in real estate. There are many ways to raise capital. To know how to raise capital for real estate one has to know the different types of funding methods.
Hard money lenders
Licensed, semi-institutionalized lenders who lend money on interest rate are hard money lenders. They don’t seek any part in ownership.
Individuals with enough money to spend on a business or a property are private money lenders. They generally want to share the ownership in property or business.
It is an unconventional method also known as crowdfunding. Simply put, a large number of people raise money to fund a project.
FHA money lenders
The federal housing administration lends money for real estate on interest rates lower than other money lenders. However this one is a little tricky.
This is an overlooked strategy but if executed well it can give quick funding. In this method, the investor signs a contract with the seller and then finds a buyer who is willing to spend on the same property. Then he assigns the contract to the buyer and sells the property to the buyer at a price higher than that in the former contract (between investor and seller), before it lapses. The profit earned is used as investment capital.
As I said earlier you can always invest your own money but it is not possible to cover all the expenditures. So convince the money lenders to invest in your business. It is not possible to do such critical work in a blink of an eye. Patience, passion and adequate strategy is the key.