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If you’ve ever thought about investing in real estate, chances are you’ve thought about the need to raise money for a deal. This is one of the most common barriers, and I often get questions about it. Commercial real estate is typically associated with multi-million dollar properties and deep-pocketed investors. If you haven’t inherited a trust fund or don’t have large savings, it can seem difficult to get a seat at the table. But the reality is that very few successful investors started with huge amounts of capital. What they did have was a way to bring value to the table.
In this series on overcoming common obstacles to real estate investing, we’ll first look at ways to get around the capital barrier.
It’s okay to start small
For the first episode of my podcast ‘The Insider’s Edge to Real Estate Investing’ I interviewed Bruce Ratner. He shared his story of how he became one of New York City’s legendary developers. His career didn’t start with billions, but with raising $25,000. That first small deal was a springboard that led to projects like the Barclays Center and Atlantic Yards.
His story can be encouraging to others. It shows that you don’t need millions to get started. What you need is a plan to make the most of the resources you have.
Your real currency: value
Capital is important, but it’s not the only thing investors are looking for. Potential partners may become very interested if you offer an incredible opportunity that they were not aware of. That value can come in the form of deep market knowledge, a carefully researched property, or a solid business plan that shows how returns can be generated.
If you can identify a strong deal, present it clearly, and back it up with data, you can raise money even if you don’t have much of your own. In many cases, investors are actively looking for reliable providers who can find and manage deals.
How to raise capital without millions
The first place to look is your network. Friends, family or professional contacts may be open to real estate as an alternative to traditional investments. By presenting them with a deal and explaining your plan, you can pique their interest. You’re giving them a clear opportunity that they might not get from other sources.
Think beyond your personal network about potential partners who could benefit from joining forces. If you can get a good deal, you might find people willing to finance all or part of it. Over time you build a track record, and with each success it becomes easier to raise capital.
To collaborate
Partnerships are another way to overcome the capital hurdle. This approach is common in real estate. Deals often involve multiple parties (investors, lenders, developers) all pooling their resources. You can look for an experienced investor with a successful track record for your first deal. They may be able to provide the capital while you do the preliminary work.
Taking the first step
Although the capital barrier may seem high at first glance, there are ways to overcome it. I often recommend starting by focusing on the value you can add to a deal, no matter how small. Build your knowledge, look for great opportunities and prepare a plan. As you do that, you will find partners and investors ready to provide the money and move forward.
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