A private placement offering, or private placement memorandum, is a way to secure funds. The reason for the fancy name is that the person securing the funds does not need to be a licensed broker. This type of method is a legitimate way for an experienced real estate investor to raise capital for deals which he/she does not personally have the adequate capital to invest. If you’re interested in real estate but don’t like the idea of holding your own property, lending to an investor is a great way to earn a profit without having the hassles of rehabilitating a home or confronting unruly tenants.
The first step to investing with a private investor is finding them. There are people out there who want to start private placement memorandums and are looking for investors. The trick is linking up, and the easiest way to do that is through networking. Start by asking people you know if they have any real estate background, or know anybody who does. If they do know somebody in the real estate business, then ask to be introduced.
It’s important to remember that the rules of networking apply. You have to build a relationship with your potential investor before you begin to discuss specifics. Meet them for lunch, get a feeling for their lifestyle, and what they are looking to accomplish. It’s ok to talk about your past experiences in real estate and why you are considering investing. It’s not a good idea to say that you’re looking for a deal with 10% returns. The reason for the relationship building prior to negotiating a deal is that it develops trust, and trust should never be underestimated when it comes to investing. You will have to trust their judgment and that they have your best interests at heart. If there is a tense period where the returns are not where you’d like them to be, you have to trust the investor to make the correct adjustments. If the property is foreclosed, you have to trust the investor to have enough honesty to reimburse your investment before attending too their own.
If networking is not successful, either because you don’t know enough people or the people you do know are very removed from the real estate realm, you can try other venues. If there is a local real estate investors association or something similar, you should consider joining it. Getting spam email and mail is a light price to pay for potentially meeting some very experienced real estate investors. You may want to take an instructional course on real estate, because some of the teachers are sure to be experienced investors. Additionally, you may learn something useful!
If you’re the investor, you can find lenders through websites like angel-investor-network.com, but those investors are generally interested in large deals. It is illegal to post ads looking for lenders on Craigslist or similar websites, because the SEC considers that public solicitation and the penalty can include jail time.
Just remember to be persistent, and you will find an experienced investor that you think has the potential to make a large profit. Real estate isn’t going anywhere, (contrary to what some of the sensational media stories may have you thinking ) and you want to make sure that you don’t just find any real estate investor, but one you can trust and you believe will be successful.
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Based out of Indiana, Jay Redding is a real estate entrepreneur, with experience in single family and multi-family investing.
