Finding cash, whether your own or from other investors, is the biggest obstacle to developing a real estate investment business. Though new investors have invariably heard about no-money-down deals, buying properties for pennies on the dollar, and walking away from the closing table with cash in pocket, they quickly find out that most of that is hype. Some of it is just plain illegal. In the real estate business, cash is still king.
Prepare a business plan. No serious investor will consider a deal that's all talk. At the very least, your business plan should cover expected expenses, income and where it will come from, a marketing plan, your business goal and the purpose of your business. Be clear about profit-sharing with investors.
Do a real-estate proforma for particular properties you have in mind to buy. A proforma will include all the income and expenses for a given property. You should know how much rent you can realistically collect; a guess isn't good enough. Don't forget to factor in debt service on the mortgage (interest and principle), property tax, insurance, a 5 percent vacancy rate, 5 percent for repairs, and other maintenance expenses. Ask for the current owner's Schedule C to get much of this information. This is the document that most investors will want to see first. They will also want to know what your experience is and what you plan to contribute to the deal, as well as what they will get out of it.
Attend local real estate investment clubs. People who attend these are already interested in real estate investments. Have your business plan and your proforma with you. Be prepared to give an honest, energetic and positive pitch.
Ask accountants if you can give them your phone number to pass along to their clients. They won't give you names, but accountants often have clients who need tax shelters and may be willing to take a chance on a private endeavor. Though the risk may be greater, the potential pay-off is also greater. Be professional about it and make an appointment and bring a copy of any proforma, supporting documentation and your business plan.
Join the local Chamber of Commerce, the Rotary Club and other high-profile organizations that attract professionals who often need tax shelters. Be sure to attend their local functions. People who attend those functions are there for professional reasons and want to make connections.
Contact financial planners in the same way that you contact accountants. They are in constant contact with a pool of investors.
Talk to loan officers. Loan officers often know of private investor-lenders who are looking for good opportunities, because investor-lenders sometimes help to make deals viable. You might not qualify for a mortgage on an investment property, but maybe the fellow who has often shown up as a partner on other deals will qualify.
Use word of mouth. Tell people you know about the opportunities and benefits of investing in real estate. Someone may know an interested investor and give you a referral.
Cat Reynolds has written professionally since 1990. She has worked in academe (teaching and administration), real estate and has owned a private tutoring business. She is also a poet and recipient of the Discover/The Nation Award. Her work can be found in literary publications and on various blogs. Reynolds holds a Master of Arts in writing and literature from Purdue University.