CFD 590 – The Secret To Raising Capital From Investors

February 10th, 2020

Do you want a six or seven figure real estate business that will actually allow you to retire from your job? Raising capital is a key skill you need to understand. The window of opportunity is wide open and there is more opportunity than you think in the short term rental business, now is the time to take action and get started.

  • Why would a landlord allow you to lease their property and make more money than them?

Landlords are in different places in their lives and the value different things, that’s what creates the opportunity for us. In fact, most retail businesses do exactly the same thing. The lease a location where they operate out of, in order to make more money than the cost of the lease. The principle is basically the same.

  • What do you believe investors are looking for? What does it take for investors to say yes to giving you money?

There are basically two things you need in order to get investors to say yes to you. Character and confidence. There are many different ways you can demonstrate those, producing content like a podcast or YouTube videos and they show up consistently. Demonstrating competence is also very important, because he who educates the market, dominates the market. Always answer at least one question with your content and actually helps people.

When it comes to raising capital, there are three types of people that you want to be in front of: guests, landlords, and investors. Another thing to keep in mind is that investors are often the people right next to you, they are not always the person in the fancy suit. Every person has an investor identity and the most interchangeable piece of the process is the deal.

Even if you don’t currently have a piece of property under contract right now, you should still be able to talk about who you serve, how you serve them, and everything the customer prefers. If you can’t talk confidently about that without having a particular address in mind, that’s where the problem in raising capital lies.

You must become a professional information gatherer because that will put you into a position to diagnose, make a prognosis, and then prescribe. You can’t do it any other way because you will never know what the investor wants. The challenge is you can’t ask them directly because most people don’t even know they have an investor identity. If you walk into any given Starbucks, there is probably several million dollars in investable capital sitting around.

You are the operator and the one with a solution, make sure they know that. There are many different reasons someone will choose to invest, and your job is to figure out what that is and solve their problem. Invite them into your world and show them that you are an expert by educating them.

If you lead with a deal based on what you believe is great without uncovering what the investor is actually looking for, you both lose.

  • The Profit Analysis Quadrant Conversation

There are four areas of profit: appreciation, amortization, depreciation, and cash flow. Each of those can be manipulated to create the outcome that the investor is looking for. You have to know how to use these tools to create a deal that solves the investor’s problems.

Show them you’re an expert by educating them and asking the right questions, find out what they are doing and what problems they are trying to solve, then explain how your transaction can be structured to solve their problem, then ask them to enroll. The final step is to ask for the referral so you start the process over again.

There is no magic deal structure that will make raising capital easier. There is a nearly infinite combination of variables that you can use to structure a deal, your limiting beliefs are the only thing holding you back.

  • Do I need to create a business plan when raising capital from investors?

A business plan is usually just a guess. You may have a solution proposed in the plan but if it doesn’t solve the investor’s problem it won’t matter. If you don’t ask what their problem is, then you won’t know and raising capital will be very difficult.

It’s better to realize that your ability to produce value for the marketplace can be used to solve their problem, you just need to ask the right questions and tailor your solution so it solves their problem.

  • How much time do you typically take to repay an investor?

There is no set time limit. You have to diagnose their problem first because not every investor needs the money back immediately, it could be 15 years in the future. It’s more important solving their problem in the timeline that makes sense for that investor.

  • Do you ever offer a lease option to buy?

No, we always start with a basic lease. There are other tools at our disposal and we want to keep it simple for the landlord. We just want to be in the loop in the future in case you do want to buy down the road. It’s better to use the capital you would tie up in an option to furnish the unit.

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