A lot of people struggle with raising finance for their property deals. For many people, raising finance can seem like an impossible task, but once you know how it is a powerful tool in your property investment arsenal. In a recent video on my YouTube channel, I explain the exact steps you need to take in order to start raising capital from investors for your property deals even if you are a total newbie. I highly recommend watching the video (above) until the end to get a full understanding of everything involved.
In this article, I will summarise the three steps you need to take to start raising capital from investors. If you find this guide useful, please share it with your friends and family. Together we can get financial education to the masses!
1. Structuring an investment deal
If you don’t know how to structure an investment deal, you won’t be able to raise finance. You can do as much networking and talking to people as you like but if you get someone to say ‘yes’, where do you go from there? Do you know what forms they need to fill in? Do you know how the company is going to be structured? If you don’t know how to structure the deal, you are stuck.
There are two main ways of structuring a deal as a loan or as a joint venture. If it is a loan, you need to know if it is going to be a secured loan or an unsecured loan. If you are planning to secure the loan against the property, you will need to know how that will effect the mortgage. A lender won’t want an investor to have a first charge on the property, for example.
If, on the other hand, you are doing a joint venture this means that you both own part of the deal and will split the profits. One way to do this is to start a company that you jointly own. The investor can then loan the company the money as a director's loan.
2. Friends and family
Before you go on to social media and try to pitch your deal, think if you know anyone that might want to invest. This doesn’t need to be a multimillionaire; many people have savings in the bank that are just sitting there losing value due to inflation. There maybe someone in your circle that is looking for a way to put their money to work for them.
It can be hard to ask friends and family to invest in a project. It can create a sense of obligation and can cause issues on both sides. The best thing to do is ask indirectly. Talk to them about the deal and ask them for their advice rather than their investment. Once you have explained the deal and got their feedback, you can mention you are looking for investors, ask them if they know anybody that might be interested. If they are interested, they will say so themselves. If not, they can turn down the deal without any bad feeling.
If you can’t find anyone in your friends and family that wants to invest, it is time to start networking. You can post on social media about the deal, but be careful not to include specifics about returns. This is against FCA regulations. You can however post that you are looking for investors and ask people to message you.
You can also go to networking events. Often you will be given a minute to pitch what you are doing. Simply describe the deal and say that if anyone knows someone that might want to invest to come and speak to you in the break. If you do all of this right, and the deal is a good one, you should have an investor in no time!