Chasing money to fund your real estate deal is hard, exhausting, exhilarating, frustrating, exciting and almost every other superlative emotion on the spectrum. If you are a real estate entrepreneur, you probably enjoy these sorts of highs and lows, and capital-raising can align with these tendencies. As our Managing Director Steve La Terra points out, if you are persistent and know where to look, you will be successful. We at Meyers Research have spent approximately 30 years working with a variety capital providers and it is clear that capital sources fall into distinct buckets, each with their own nuance. While not all inclusive, the segments below may help you prepare for your capital-raising adventure:
- Banks – Heavily regulated lenders that provide acquisition, development and construction loans. Often less than $5 million per borrower/deal.
- Friends and Family – Early stage equity providers that know, trust and believe in the operator. Profit driven, not return (IRR) driven, and provide small amounts of capital ($25,000 to $500,000). Note: pay attention to securities laws when raising this type of capital.
- High Net Worth Individuals – Wealthy individuals capable of writing multi-million dollar checks. Typically finance more established companies and like to do repeat business.
- Private Money Lenders – Also known as hard-money lenders. Unregulated capital sources that provide low leverage, short terms and high rates. However, rapid approvals are available.
- Real Estate Private Equity Sources – Institutional (large and heavily structured) debt and equity. Not typically interested in deals less than $10 million. Best for established companies that can afford a 5% to 10% co-investment of funds.
- LP’s (Limited Partners) – Pension funds, university endowments, insurance companies, etc. that invest with platforms like private equity companies rather than finance deals or operators.
- Wealth Management Companies – Companies that manage the portfolios of high net worth individuals/accredited investors and may make investments in real estate to diversify their client’s portfolios.
- Family Offices – Super rich families that have established companies to manage their wealth. Hard to find and can change direction rapidly.
The secrets to a successful capital raise are persistence and targeting the right sources. If your 50th target source would say “yes” to your deal and you stopped looking at #49, you may have missed a career changing opportunity. The “right” sources for your deal/company largely depend on the growth stage of your company and the nature of the real estate deal. Knowing how you “fit” and aligning your outreach strategy accordingly will give you the best chance for success.