If there’s one thing, we can all agree on, real estate is expensive, especially right now. For the average person looking to raise capital, whether it be for a deal or for a private company, getting your hands on investment capital can be difficult. Many start-ups, investors, and syndicators alike turn to raising funds for their deals or small businesses. Capital raising can be a great way to secure funding for a property and allows real estate investors the ability to team up and create relationships other partners that they’ll have in their network for future opportunities.
But what does it take to get started and acquire those funds if you’ve never raised capital before? Getting started can quickly become overwhelming if you don’t know the rules or how to take the first (or next) step! to But as people turn to Self-Directed IRAs for funding, we’ve seen a thing or two, so we’ve gathered the best tips to help you raise as much investment capital as possible!
1. Choose Your Funding Method
There are plenty of ways someone can raise money, and you aren’t always limited to just one method. Options like crowdfunding allow you to cast a wide net and reach a large audience who might potentially want to provide funding for your startup or investment. If you’d rather start small, asking your personal network is a great place to start. But always make sure you’re comfortable taking money from a friend or family member!
Some people turn to venture capital, which is usually linked to a firm who manages the money invested by limited partners. Of course, the most common way we see funds being raised here at Quest is with Self-Directed IRAs. When investors use their old 401(k) and IRA funds to invest, it not only benefits the investor since they’re usually getting better returns than on a publicly traded investment, but it also benefits those seeking funds because there is more possibility to secure funding. With over 2 trillion dollars in retirement accounts, Self-Directed IRAs are one of the best places to look for funds.
2. Investment Reflections and Future Earnings Projections
It goes without saying, but the past few years have been a little crazy! We’ve seen ups-and-downs throughout the pandemic, some of which have had significant effects on small businesses, startups, and those raising money for investment properties. Take a moment to reflect on your past year. If you’re a small business owner, look at your numbers. For those with real estate deals, look at your past portfolio. What were your initial goals for the last year and how close were you to achieving them? What were your biggest accomplishments? What were your lessons learned? These are all questions you should be asking yourself.
Once you’ve taken a moment to reflect, start thinking about what you plan to accomplish for the upcoming year. With this money, how do you expect to make it a successful deal or an income-generating year for your business. Be able to bring estimated numbers and a plan to reach those goals for at least the next year, but 12 to 18 months and more will show them you’re prepared and determined.
3. Have a Solid Elevator Pitch
When you meet with potential investors, you’re going to have to know what to say. Never go into a pitch without knowing the exact message you want to get across and how you’re going to successfully convey it. As mentioned, bringing any past numbers or a portfolio of success will always help your pitch, but you don’t want to become too rigid in your approach. Some of the best pitches are ones that tell a compelling story. Take your potential investor on the journey, whether that be through the project or business goals. By using verbiage that inspires, creates emotion, and accurately articulates concepts and goals, you’ll be able to perfect your elevator pitch and secure more capital.
4. Know Your Audience and Understand the Potential Limits
Once you have chosen your method for how you want to raise capital, and you’ve perfected what you’re going to say, you can start reaching out to potential investors! But before you make your introduction, make sure you understand the audience. Not all investors are the same! For example, we’ve mentioned that Self-Directed IRAs are a great source of capital, but don’t expect all self-directed investors to understand the same types of opportunities. The beauty of self-direction is that investors can use these accounts to purchase any private investment that they know and understand, within limitation. Some investors will want to use their money to fund specifically small companies, while others will strictly invest in multifamily deals. Additionally, understanding the rules of self-direction will help you know if you should even be turning to SDIRAs in the first place!
For syndicators, it’s extremely important that you understand the very specific rules and regulations put in for real estate syndication fundraising by the SEC. In other words, the syndicate’s legal entity must be registered with the SEC and raising capital is only a matter of concern for sponsors. There are two rules syndicators need to be aware of. Rule 506(b) says that syndications filing under this one are allowed to raise any amount of money from accredited investors but cannot engage in any advertising efforts or perform general solicitations for their offerings. They can have up to 35 non-accredited investors with no limit on the number of accredited investors. Then there is Rule 506(c). Filing under this rule allows a syndication to market the offer but restricts you from raising capital from non-accredited or sophisticated investors.
5. Ask for the Order
Last but not least, don’t be afraid to simply ask for what you need! Don’t beat around the bush. Go into any pitch confidently and with your goal always in the back of your mind. Make sure you’re not only coming prepared with the answers to questions you know your investors will want to know, but also ask if there is any other information you haven’t been able to provide that you can answer now or follow-up with at a later date. If you’re at an open-networking opportunity, always provide your contact information and ask for others’ business cards so that you can grow that relationship. Never leave a pitch without asking for your order!
Raising capital doesn’t have to seem like a daunting task, and the more prepared you are the easier and more successful you will be at obtaining capital. If you would like to network with other investors and Self-Directed account holders, Quest events are a great place to turn as they allow you the platform to pitch your deal or service! If you would like more information about how Self-Directed IRAs can be a source of funding for your deal and how they can help your small business, call us at 855-FUN-IRAs (855-386-4727) or schedule a free consultation with an IRA Specialist.