Knowing how to raise money for real estate investing is the first step in succeeding in this exciting field. Today’s lenders are keen to see what you can bring for a potential deal.
If you can put together an attractive package, they’ll be more than happy to partner with you. There’s never been a better time than now to consider raising money for real estate investing.
Historically, most investors were interested primarily in the stock market. Many learned to manage their portfolios and facilitate trades using internet platforms such as M1 Finance.
Over the years, however, investors have shown a significant shift in strategy. Over one-third of American investors prefer real estate.
And many are getting rich.
The key is to find the money–or capital–to get started. Even seasoned backers seek outside funds for real estate investing.
For that, you need to understand how to properly and safely raise capital.
Table of Contents
How to Raise Private Money for Real Estate Investing.
The internet has leveled the playing field when it comes to how to raise private money for real estate investing.
Once the preferred way to diversify investments for the wealthy, real estate has been made accessible to anyone willing to do the research to make sound real estate investments.
One internet-based company that offers a low barrier to entry is Fundrise. They feature real estate investment products for every level–from novice to mogul.
Signing up on Fundrise takes minutes and you can choose how to fund your account. Then your private real estate investing begins from the comfort of your home computer.
The best way to raise money for real estate investment is to learn how to talk to people about joining you in investment opportunities. It’s an important skill to have if you’re serious about making money in real estate.
You’ll need to identify the people with whom you can start a conversation about how partnering with you in a real estate investment can be mutually beneficial.
Anticipate their questions and make sure your answers identify any risks. You want your partners to have all the information they need to make sound decisions and have confidence in you.
Approaching people to raise money for real estate investment takes time. You must have solid relationships with them before you present specific deals. This means becoming an expert in networking.
After establishing trust, present any opportunities you think may interest and benefit the people in your personal and professional network. Don’t shy away from branding yourself as a real estate investment professional.
It’s important to treat your interest in real estate investment as a business. Pull together marketing materials that will show your potential partners what working with you on a real estate investment will look like.
Then when an opportunity comes to your attention, you’ll be able to smoothly walk them through it. If it sounds like a hustle, it’s because it is.
But once you hit your stride, you’ll be raising private money for real estate investing like a pro.
How to Borrow Money for Real Estate Investment.
How will you raise money for real estate investment is an important question to explore before you take the plunge.
You may have found what you believe is the ideal property, but how do you finance it if you don’t want to go the private money route?
Use a mortgage broker
A mortgage broker will find lenders for you who have the appetite for the types of real estate deals you’re hoping to do.
A good broker will take your financial strengths and weaknesses to their lender network and return with viable options for your needs.
The first step in using a mortgage broker for borrowing money for real estate investment is knowing how many loans you’ll need to meet your investment goals.
Fannie Mae will allow up to 10 loans per investor. However, many banks and other lenders will limit borrowers to only four loans.
You may need a strategy to find a lender to work with you on a more suitable number of loans.
Make sure your broker understands real estate investing and your goals and objectives. Ask how they find their own investments and the resources they like to use in making financial decisions.
Eventually, you may find you like working with lenders directly. But a savvy mortgage broker can be invaluable as you start your real estate investing journey.
Negotiate owner financing
You can also approach the property owner about terms for owner financing.
Make certain the property is available to be financed–that is, the property is owned free and clear of any loans or their lender will allow financing to go through.
Agree on a down payment directly with the seller. Then work out a favorable payment schedule and interest rates.
Both sides of this kind of financing should use attorneys or other professionals for advice and to handle contracts.
Otherwise, owner financing is an easy way to get the property you want with minimal risk and lowered expenses.
Promote on investor websites
Crowdstreet is one of the many internet platforms that allow for people to both invest in existing real estate deals and to raise money for their real estate investing.
Instead of pulling money from different people and places, Crowdstreet allows you to list your deal.
Their vast network of investors can see your project and choose to partner with you. Through the Crowdstreet platform, you can raise your capital while managing the entire project.
Crowdstreet’s Marketplace provides investors a simple, elegant way to search for individual deals and managed funds.
They also have a comprehensive resource center with guides, reports and continuing education.
How Much Money Do I Need for Real Estate Investing?
How much money you’ll need for real estate investing is something you need to determine early in the game.
If you want the stability of real estate, learn the different paths to building a portfolio as well as the expected outlay for each.
A REIT, or real estate investment trust, may be an option for you to enter the commercial real estate market.
REITs are made of hotels, multi-family housing, public storage or another category of income-producing real estate.
They are typically specialized either by type or region. Do your research to determine what kind of REIT you want to put your money in and where it’s located.
Areas where the economy is depressed and unemployment is high will result in a lower payout.
This happens because residential tenants may fall behind in rent or commercial buildings will see business tenants fold.
These are common risks associated with REITs, so it’s advisable to do your due diligence by reviewing the REIT’s balance sheet, credit rating and occupancy rate.
Non-trading and private REITs are highly illiquid and all REITS can be slow-growing.
REITs with dividend reinvestment options are better for long-term growth and can provide steady dividends.
Their consistent performance can be used as a hedge in an existing portfolio with riskier investments.
Some people like to day trade publicly-traded REITs as they are stocks and can be traded as such on major exchanges.
You must use a tested strategy and watch trends closely to protect against losses when you day trade REITs. Maybe leave this type of investing to the pros!
Another highly rated crowdfunding way to get started in REITs is Diversyfund. Five hundred dollars gets you access to commercial real estate deals.
They don’t charge management fees because the company owns the investment properties instead of acting as a broker.
Once you’ve set up your account, you can buy shares in Diversifyfund’s public nonlisted DF Growth REIT.
The REIT is not publically traded, so it’s illiquid until the properties are sold.
This will work for investors who want to start with minimal investment, want to diversify existing portfolios and who don’t need the cash out anytime soon.
What are the Costs to Invest in Real Estate?
Answering the basic but important question of “what are the costs to invest in real estate?” should be part of your how to raise money for real estate investing strategy.
Once you obtain properties, there will be additional expenses beyond your monthly mortgage payments.
You’re obligated to maintain your units in good working order. Repairs will come up unexpectedly and you must have cash set aside to address them immediately.
Most of the time, an emergency repair will be for an appliance. But disasters can happen at any time and you have to be prepared as a landlord and real estate investor.
You’ll also need to have the units treated to prevent or remove insect infestations. Periodic pest treatment is your responsibility as the property owner.
Keeping on top of treatments will make your tenants happy and minimize the chances of property damage.
Depending on the area and the primary purpose of your rental properties, you may need to furnish them.
Short-term rentals as real estate investments will require fully equipped kitchens, sets of linens, cleaning products and bathroom toiletries.
Many neighborhoods or buildings have homeowners association or maintenance fees to cover the upkeep of public spaces and amenities.
You’ll want to keep these monthly costs in mind when you set your rental/lease rates.
Other types of investment costs for real estate have to do with the actual real estate transaction.
You’ll be responsible for paying for an appraisal to supply to your lender. The appraisal determines the current market value of the property.
You also must consider your closing costs, which is the figure that covers all the fees associated with the transfer of property as a real estate investment.
Your agent can tell you what this number will look like so you can plan accordingly.
Your mortgage payment is not only the purchase price of the house divided by the number of loan payments.
You’ll see interest, taxes and insurance included in that monthly amount. Get your expected payment calculated ahead of time for budgeting purposes.
How to Raise Money for Real Estate Investing on the Internet.
Think you’re ready to get started in the potential high-roller world of real estate investing?
These internet platforms offer real estate investment opportunities for all levels of experience, from $10 to $10,000 and up.
But RealtyMogul’s commercial real estate investment offerings are open to all. Even nonaccredited investors have access to a couple of public nontraded REITs, MogulREIT I and II.
Nonaccredited investors must first be accepted by RealtyMogul as a “Qualified Purchaser.”
What this means is that your RealtyMogul investments make up no more than 10% of your income or net worth.
Accredited investors or those with a net worth of at least $1 million or make more than $200,000 annually, have an all-access pass to any of RealyMogul’s deals.
RealtyMogul does offer a buyback program on their MogulREIT I and II which makes them more liquid. Most crowdfunded programs don’t do that, at least for a few years.
You will lose 1 to 2% of your investment, but it’s still good to know you’ll have liquidity in an emergency. Check out their high-return targets on their website.
Of course, there are no guarantees.
It’s advisable to do your homework on the risks of nontraded REITs too. But if you’re looking for access to real estate investments with some liquidity, RealtyMogul may suit you.
The crowdfunding platform Groundfloor focuses on flipping properties. Investors can look for opportunities to lend money to flippers in Groundfloor’s carefully screened pipeline.
Investors are then repaid their initial buy-in plus interest. There’s plenty of risks, but there are also investors seeing high returns.
And, the minimum to invest is only $10 to encourage diversification. It’s a way to get into the home-flipping business without ever hammering a nail.
This platform works for people with high net worths that aren’t yet willing or able to put down six figures or so for real estate investments.
For a minimum of about $5000, Yieldstreet offers alternative investments, including real estate, with higher risks but also the potential for large yields.
If you’re looking to grow your wealth with a more diversified portfolio, give Yieldstreet a look.
- 12 Best Apps for Real Estate Investors
- 30 Top Real Estate Investing Terms to Know
- 9 Best Rental Income Trackers