When you are looking for investors for your deals, you need to have a process in place to help you determine which investors will suit the deals you are looking at. Try thinking of it like a job interview; you need to have questions in place to help you find the right “candidates” for your projects. Your goal is to create a stable of private money sources that you can put into the deal depending on the type of deal. Here are the questions that you need to be asking when talking to investors.
1. What is the reason for investing? You need to find out why they want to invest. You need to take the approach that you are someone who is willing to listen to what the investor’s needs are as opposed to someone who just needs their money.
Some common reasons for investing are paying for a college education or a second home or to set aside money for retirement. If you are armed with this knowledge, it can help you fit the right deal to the investor.
2. Have they ever done any previous real estate investments? The answer to this question will help you determine how much “hand holding” they require once the deal gets under way. The more experience they have, the easier the process will be.
3. What is their risk tolerance? Are they looking for low risk or high risk deals? You don’t want to try and match a little old lady who has money in CD’s with a multifamily property that’s located in a high-crime, drug infested neighborhood.
4. How much do they have to invest? Most of the time, an investor will not give you everything they have up front. They want to test you first. They may say they have $10,000 to work with. That’s ok.
You can then ask them if you can contact them if you have a deal that requires $100,000. If their answer is yes, then you have a good idea that they are playing for bigger stakes. Any answer but “no” could eventually mean a “yes” in the long run.
5. Could you refer me to others? Once you take care of the investor, and they are satisfied, you need to ask them to refer you to friends and family. This is a very powerful tool because it leads you to other deals.
These five questions are the minimal amount of information you need to gather from your potential investors. The information you gain from the answers to these five questions gives you great insight as to what deals you are working on will match up with the investor.
Lance Edwards is living proof of his mantra that you don’t have to “graduate” from single family to multifamily – you can start with multifamily; using none of your own money and not dealing with tenants and toilets. For FREE information, visit http://www.ApartmentWealthMachine.com.