Publications
Partners
SUCCESSFUL real estate investors come with a variety of talents and specialties – not necessarily all in the realm of real estate.
Some may be good at remodeling, interior decorating, or making a property energy efficient.
Other investors may come from completely contrasting fields, and their lack of knowledge and experience in any one particular field of real estate investing tends not to disadvantage them.
However, there is one aspect to being a successful real estate investor that every practitioner must either be inherently good at, or learn how to become good at, and that is raising the capital for new acquisitions.
If you had the $20m required to purchase a $20m property for cash, then you would merely be deploying the funds in a real estate deal. True investing would involve using the $20m as a down payment to acquire a $100m property.
While raising capital to fund a deal is an integral part of any real estate transaction, the process is the one that generates more angst amongst investors than drawn-out battles with local authorities on zoning issues, licensing, health regulations, easements and liens.
I find this surprising, because it is the task of those involved in regulating and policing these latter activities to take a stance which if not directly adversarial, is certainly one where your conformity to their rules is strictly policed. In contrast, when we approach banks, insurance companies or other financial institutions to raise capital, we already know that subject to the deal meeting their minimum requirements, they want to lend you money. That is, after all, how they make money.
So, the first step in overcoming the hurdles of raising capital is to realise that the very people you are approaching truly want the deal to meet their criteria so that they can give your investment the green light. Just knowing that they are, in essence, on your side, will hopefully remove some of the fear that most investors seem to have when approaching funders.
More important, however, is the need to make their decision (as to whether or not to fund you) easy. I am astounded by the number of investors who come to me to ask me why their funding request was turned down, and when I ask to see what they showed the prospective funders, they just produced the forms, duly filled out of course, given to them by the lending institution.
How to write a proposal for finance
In order to make it easy for the funders, create your own Proposal for Finance. Include a high quality colour photo of the property on the cover page. Summarise the entire deal on a single page, so that at a glance, the institution can see exactly what you want, the loan amount, what the collateral will be, what the income is, purchase price, appraised value, and other relevant data.
Then in the remainder of the proposal, detail the budgeted cash flows, the leases (as appropriate), and any relevant statements of Assets and Liabilities, and Profit and Loss, of either yourself or the entity buying the property.
Don’t whip it together in half an hour – spend a day or two on it to make it the best Proposal for Finance that the lending institution has ever seen.
Also, stick to the truth so that with time, your lenders know they can rely on your facts and figures. Such a well-crafted proposal will not compensate for a bad deal, but you wouldn’t want them to fund the deal if it wasn’t a sensational deal anyway.
Creating a Proposal for Finance in this manner will not only provide a reality check to make sure that the acquisition is indeed something you’d dearly like to add to your portfolio, but it will remind you of why you are in the real estate game in the first place, and spur you on to find the next great deal.
And as we all know, the deal of the decade comes along about one a week. Funding the deal should be easy and certainly not the cause of worry and angst.
* Dolf de Roos, in addition to being the President of Wealth Migrate, has authored fifteen books on real estate including the New York Times bestseller Real Estate Riches.
