At the end of 2007, the investors (that still had money) ran to the sidelines. And they have been sitting there for a few years now, bored but safe.
Well, the boredom created action and our new economy has created confidence. The investors are back in a big way. The rules are a little different but if you need money for your project – especially your real estate project, it’s there for the taking.
I have a client with a real estate development project. We started looking for investors in August of this year. At first, it was a little slow because I did not have good local investor knowledge. Having gained that over the last couple of months, we got to the driver’s seat. We are going to close on the deal early next week which is good news. Better news is we have close to 10 legitimate investors that have lined up to invest. I haven’t seen anything like this since 2006.
As I mentioned, the rules have changed. The due diligence the investors are going through today is a much more stringent than what they did in years past. But that should be OK with you. There are no more projects where throwing money against the wall yields double digit returns. Today, we have to be good businessmen and women. We have to be somewhat cautious, have good plans and have the skills to execute those plans. I really love today’s investor/business environment (government regulations notwithstanding!).
Based on my experiences with this project, here are my recommendations:
- You will be most successful with limited life projects. Investments in ongoing business concerns/start-ups are still for friends, family and SBA loans. Real estate rocks!
- It’s all about investor’s perceived risk. He is a lot more interested in preserving capital than he is in getting a great return.
- His investment is going to cost you a lot. Going to him means the banks have said no and he knows this. You will give away plus/minus 50% of the deal to your investor.
- Talk is cheap. You need to support any statement you make: market research, signed contracts, bids, appraisals, etc. Your great pitch may open the door but it is not enough to close the deal.
- You’ve heard it before: under-promise and over-deliver.
- Do not give away day to day decision making authority. This is your project and you are the expert. Investors will try to micro-manage you. Create failure points that both of you agree on – with the consequences defined. If there is no failure, he has no say so at all! You will fail if you do not follow this guidance.
- You need a great financial plan with forecasts and budgets. Make sales price and sales pace the only true variables. All costs need to be completely nailed down.
- It’s not all about you, it’s all about your team. Build a great one.
While there is nothing new here, each and every step is very important. The good news is you do have a path to financing your project. Good luck!