Making your own investors is one of the three options we use to find money to flip houses. See below for the other two.
Make Your Own Investors
Do you have friends and family that are already investing in areas besides real estate? They can diversify their portfolio by investing with YOU! Why let hard money lenders make so much money? We like to bring our friends in on the action. They make good investors because they want you to succeed! A win-win in this scenario is obvious.
This may be hard to do if you are just starting out. The most risky flip is usually the very first one. As you gain experience, you will grow your network. That means even more friends that could be your investors. The best part is that your group will expand to people that know a lot about real estate. Think about your agents, contractors, architects, engineers, inspectors, etc. They are already working your projects with you. Nobody knows more about the process. Why not offer them the ability to make even more money for the job they are already doing? To say the very least, we have found that finding the money is not hard to do once you have some experience!
Real estate is a very common investment vehicle. We have found that converting first-time real estate investors works well. They are already familiar with real estate or investing. Most people like the idea that real estate is tangible. It is a physical thing that you can touch. Everyone can see for themselves when you increase the value of a piece of real estate. The value will also never diminish to absolute zero because the land it sits on will ALWAYS hold value. Other investments don’t have these qualities.
There are two considerations that must be addressed before you can convert investors.
First, they will not know how to do the deal on paper. Don’t expect your people to create a contract for you to sign. You have to create it. Not to worry, we have a full Contract for Investors. It includes a Joint Venture Agreement, Joint Venture Modification Agreement, Promissory Note and Mortgage. Check it out, let us know if you need help.
Second, they may not have enough money separately. Real estate transactions require a lot of money! So much so that you may need multiple investors involved for just one deal. You can’t really expect one person to hand you the whole amount. The Contract for Investors is designed to do just that! Several people join together with you into a Joint Venture. A Joint Venture is a cooperative business arrangement entered into by two or more parties, which otherwise retain their distinct identities, for the purpose of completing one specific project. The specific project is your flip house! Investors in a joint venture can be individuals or business entities.
The Investor Mindset
If you want to find investors for your house flipping projects, then you must understand them. You have to be able to think like an investor. Imagine yourself giving someone else your hard-earned money that you have saved for your whole lifetime. What would you be thinking?
Investors are people that earn their living, either fully or partially, by putting their money to work. Investors divide their money into different investment types. Typically, some percentage will be invested in the stock market, some in real estate, some in businesses directly, and some in other higher-risk projects as they see fit. Which category does your flip project fall into?
Investing can be very risky. Risky investments are more likely to fail, but return a higher reward if successful. This is really just legal gambling. Investors may work long hours even though investing is usually passive. The better investors are always watching for triggers that money must be moved from one investment to another. This is how they gain the edge.
Most investors are conservative. They prefer safe investments at lower return rates for the majority of their money. The objective is to spread the money into several smaller investments in order to mitigate risk even further. This is how wealth is acquired over time. Real estate investing, in general, meets these criteria. However, house flipping has two drawbacks for the investor that they must overcome.
First, flipping houses is a short term investment. Most investors prefer long term, liquid investments. They need the funds invested at all times. Short term investment opportunities are more work for investors because they require more planning. They need to know where the money is going next. If you have multiple projects, then their money can roll over from one to the next.
Second, flipping houses is not a liquid investment. The investors prefer liquid investments. Liquidity refers to the ability to recover the money quickly. The only way to recover the money is to find another investor (refinance) or sell the property. Either option is not immediate, and could take a long time. This may be an even larger problem if the market shifts or the project sours leaving foreclosure as the only option.
However, everyone knows that money that isn’t invested can’t make a return. Investors have to invest the money SOMEWHERE at all times. They are always looking for an investment with higher returns and manageable risk. Our goal is to present THAT investment opportunity.
Alternatives to Making Your Own Investors
There are two other options we use to find money to flip houses. Please read these articles next.