Raising Capital: Expectations vs. Reality
Nov 07, 2021
"Raising the money for this deal will be easy," you tell yourself. "I'll go to the people I know, and they'll give me the money I need."
Sound familiar? I know it does.
As you've probably learned when it comes right down to it... it's never that easy.
This blog post will talk about some of the misconceptions people have when raising funds for real estate deals and how those misconceptions can cause real issues down the road.
Expectation #1
"Investors will totally love this deal."
Reality
You may love the deal because you know the market, the players involved, and the strategy to make it happen.
But, your potential investors don't have your perspective and may not understand the business the way you do.
Have you ever heard the term "a confused mind doesn't buy?"
But, unfortunately, a confused investor doesn't cut checks either.
Solution
Take the time (before you have a deal) to teach your potential investors about the market you invest in, the strategy you use, and the kind of properties you are on the lookout for.
Expectation #2
"This will be easy. The deal is a no-brainer."
Reality
There are "no brainers" in real estate.
There are only gaps in the market and opportunities to make something out of them.
All deals carry risk. It's essential to disclose the risks and talk about how you plan on mitigating them (the ones you can anyway).
Solution
Set realistic expectations when speaking with potential investors and work with your lawyers to ensure you've disclosed the risks.
Expectation #3
"I've got all the commitments I need to close."
Reality
You have nothing until the proper paperwork is done and the money is in the bank.
You can never have too many people interested in your business, and turning away potential qualified investors before you're fully funded may cost you dearly.
Solution
Put in place a strict closing schedule for your qualified investors with enough time before the actual property closing to ensure you have the funds you need to close.
Marcin Drozdz
The information contained herein is for general guidance on matters of interest only. This information contained herein is not intended to provide you with any advice on financial planning, investment, insurance, legal, accounting, tax, or similar matters and should not be relied upon for such purposes. www.marcindrozdz.com is not a financial or tax adviser. You should assess whether you require such advisers and additional information and, where appropriate, seek independent professional advice. www.marcindrozdz.com, its subsidiaries, and affiliates are not responsible in any manner for direct, indirect, special, or consequential damages however caused arising from your use of the information contained herein.
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