In my experience with finding the funding for numerous types of real estate assets, I’ve had the best success and the least drain on my ROI when I’ve worked with investing partners. Hard money loans are easy to come by, but with interest rates in the ballpark of 14–18%, even making just a few payments can add up and really dig into your profit margin. Private lenders are generally somewhat better, but there’s still some interest involved, and there may be other fees, as well.
On the other hand, when you work with an investing partner, they put up the investment capital, you put in the sweat equity, and the two of you split the profits at the end of the day. In other words, you’re guaranteed to get half of the money you make on any flip house without ever putting in a dime of your own money to begin with. Pretty great, right? So how do you find an investing partner to work with you on house flips?
Friends and family are the first place that a lot of people turn, but unfortunately a lot of new investors don’t know how to ask their friends to “borrow” a few thousand dollars for a few weeks or months. Because they’re unsure of themselves or because they’re talking to a friend, they don’t approach the subject with the same professional air they’d approach an investor they didn’t know personally.
If you have someone in your life who’s looking for a good investment with a fast return, you can help each other out by partnering for your next flip, but you need to know how to approach them to make them feel comfortable with the investment.
Create a Proposal
First, pretend that you’re going to be making a pitch to an investor you’ve never met before. Sit down and write a detailed, professional proposal that includes all of the benefits of investing with you, any risks involved in the investments, contingencies you’ve planned for, etc. Put this proposal together and then practice pitching it to your friend until it comes naturally to you.
Schedule a Meeting
Next, don’t ask one of your friends to invest in your real estate investing business while you’re hanging out at happy hour, at a neighborhood cookout, or any other time you’re spending casual time together. Instead, call them up and tell them that you have a business proposal for them. Then schedule a meeting to discuss it further. This way, they won’t be blindsided by your proposal, and you’ll have the chance to make your pitch professionally and succinctly.
Manage Your Expectations
Finally, keep your expectations in check. Just like any other investor, your friend may not be entirely convinced by your pitch. Or they may have just invested all of the funds they have allocated for real estate. They may even want to see you succeed with a flip property before they commit to partnering with you.
If you plan for these outcomes, you won’t be overly disappointed, and you can plan for borrowing from a hard money lender or finding another investor for this flip deal so that you can come back later with concrete numbers to show that investing with you is a wise move.
Now you have the basics for approaching a friend about investment capital. Remember, be professional and give them all the details possible about the deal so that they can make an informed decision. If you follow this advice, you might end up with an ongoing partnership that will be mutually beneficial.