Raising Money For Your Real Estate Business
By Paul Esajian on August 21, 2015
When is the best time to raise money for a real estate venture?
The prospect of more money has been identified as one of the primary reasons people fail to get started int he real estate industry. Some even get in with the goal of raising millions, going IPO, or being bought out for a billion dollars. Yet, as in both real estate and business, when it comes to getting funded, timing is everything. So is holding out for seed funding the best move? Or is there are better stage at which to attempt fundraising? If so, what do you do in the meantime?
The Struggle of Finding Startup Funding
Getting money to start a new business has never been easy. Current trends and new technology may be making things easier, but it can still take work. Walk into a local bank and ask for a loan to start a brand new business and you’ll quickly experience the difficulty for yourself. Despite all the hype about startups and getting funded, it still isn’t as easy as many make it out to be. Real estate has some advantages and disadvantages. Real estate related businesses have recently been identified as some of the longest lasting startups. Then there is often the security of tangible real estate assets, which is a lot better for lenders and other investors to take a chance on. There are also a lot of people trying to move into real estate.
Data published via Forbes and the SBA (Small Business Administration) shows over half a million businesses are incorporated in America each year. While few of these may actually look for or need funding, only about three percent of all venture capital money may go to brand new businesses. Venture capital firms and angel investors often only fund around two percent of the funding requests that actually make it to their desks. So 97 percent of VC money goes to existing businesses. Although, it is worth noting that many companies that have been around for two to four years still call themselves startups.
Milestones that Make Fundraising Easier
If you can make it past the break-even point and show true profitability, along with the potential for scale, you’ll be even better off. At this stage, others should be eager to throw money at you so that they can participate in your success. You might have to shout about your achievements and raise awareness, but you’ll have what investors are looking for.
What if I Need Money to Get Started?
What if you’ve got a great idea for a real estate business or investment strategy, but are really tight on money? Maybe you can afford to pull off having a professional business plan and prospectus written, but that’s it. Then what do you do?
For starters, ask yourself if you really need money, or you just want it. How about starting with some no money down deals or partnering up with someone else for the first couple? Wholesaling, in particular, can be a great way to get in and raise some of your own capital.
Some might want to take on a side gig to have a little spending cash. Good options may include working for another real estate investor, working for a builder to get some real estate sales experience, or a commissioned mortgage or title rep gig.
What about friends and family? They can be some of the easiest and most obvious money partners. If you don’t ask, outside investors are going to want to know why your own family and best friends didn’t trust you enough to help out. Then there is crowdfunding: if you don’t have the resources to do so professionally, a GoFundMe campaign can be run.