Exactly How To Raise Private Capital For Real Estate With Max Keller

Learning how to raise private capital in order to finance residential real estate
the investment quickly becomes overcomplicated without proper guidance.

That said, attracting investors who will share your vision, understand your portfolio and offer appropriate terms within the desired period of time can be difficult regardless of the property you are interested in purchasing, renovating, or retrofitting. It is particularly harrowing during real estate bubbles — when buyers and sellers are all engaging with the market. This type of market can result in unprecedented sales price jumps in certain neighborhoods and record lows in others.

Such a market makes the investment a more complex fare. Regardless, the fact remains that real estate is still the most surefire way to build wealth over time.
As investors prepare to diversify — or even cull — their portfolio of real estate investments, many consider how to raise private capital for their purchases. Strategies may vary depending on the type of investment and the type of cash flow following that investment — e.g. rental income earned or profit made post-sale at some point in the future. Follow below for Max
Keller’s recommendations on exactly how to raise private capital for successful,
profitable residential real estate investment. For full details, listen to the podcast.

Learning from Max Keller

Connected Investors’ speaker for this episode of the Exactly How podcast is Max
Keller, an innovator in real estate investing who began as an educator — and
continues to engage with his talent for teaching in the residential real estate sphere.
Keller currently lives and works in the Dallas-Fort Worth area of Texas, where his
interest in real estate blossomed after successful careers in corporate finance,
teaching school-level math, and coaching children’s sports. His focus turned to real
estate investing after a quest to make a bit more money to support his fulfilling —
but not particularly lucrative — jobs working with kids and to contribute to his
retirement. Keller began with a few residential rental units but was quickly “bitten by
the real estate bug.” After being “bitten”; he found a local mentor and started
wholesaling.

For those unfamiliar, wholesaling is a short-term real estate investment strategy that requires very little up-front capital. This is because the wholesaler functions as a middleman, aiding a seller in finding a buyer, particularly when the property owner has been listed under the current market value. After the sale is completed, the wholesaler receives a fee related to the sale price of the property.

To make a long story short, Keller found himself to be just as talented at real estate
investing as he was at teaching. He also found a surprising number of connections
and cross-overs between the two. Keller made an astonishing $16k on his first deal,
which allowed him to invest in a fix and flip. After a few successful
projects/investments, Keller left his previous jobs and committed to real estate
investing full-time. These days, Keller invests on his own and aids others in doing
so.

How To Raise Private Capital in a Targeted Way

Though Keller’s career in real estate investing has been enormously successful, he
found raising capital and finding deals to be incredibly time-consuming. From cold
calling to sifting through different websites, Keller’s strategies for finding leads were
effective but felt unpredictable. Chasing leads became a bit of a money pit, with
some working out and others floundering — particularly as competition grew fiercer.

It was during this period that Keller turned towards a more innovative approach to
finding leads and raising private capital in a targeted way.

Step #1: Attract the Right Investors as a Hunter or as a Trapper

Keller outlines two methods of attracting the right investors in your journey to
raising private capital for real estate investment. The first is hunting, which was
briefly outlined above and references basically “chasing people down,” as Keller puts
it. Hunting is very common but is also extremely time-consuming, expensive, and
difficult. Because selling people on one’s project takes a long time and feels a bit
artificial, this method is not Keller’s favorite. He recommends going the other
direction and approaching investors through the trapping method, which Keller
describes as “share and attract.” Educating others and sharing one’s expertise and
mindset allows potential investors to gain insight into the project — and the person
lauding it — without hard-selling. This will help you stand out in a crowd.

Step #2: Create a Program

Step two involves creating a checklist that identifies what your baseline minimum
expectations for each investment or project are. The list can be laid out as a series of
questions. For instance “How long should I know the investor before working with
them?” or “How much experience should my investor have?” Outlining your
expectations will prevent you from choosing the wrong lender and will make sure
your intentions remain top of mind.

Step #3: Retain the Best Private Lenders

Raising private capital should not be simply about a one-off deal. So much energy,
time, expertise, and money is spent attracting lenders that holding onto the great
ones is incredibly important. Part of lender retention — of course — is making good
on any deals done but another is establishing a quality, genuine relationship with
the lender. Retention also often means re-investing money made off previous
projects into new projects and keeping in touch after the deal has concluded. Keller
explains that “the longer a good relationship goes…the better it is, the more
responsive [the lender]” is. Establishing trust in this way also results in increased
flexibility for you as the person seeking private capital for future projects. Keller also
recommends being as honest about a property’s potential value or cash flow as
possible in order to avoid “over-promising.” Over-promising results is one of the
quickest ways to lose that hard-won trust.

Figure Out Your Niche & How to Market Yourself

If sellers and investors feel that you are within their niche — that they can relate to
you and feel that you offer valuable experience and commitment in a certain area —
they might be more inclined to work with you than others offering more lucrative
deals. After Max Keller identified that motivated sellers were his “niche” and
determined how to market his skills to the right people, he found that “folks…were
taking [his] offer, even though they were getting bigger offers from other people.”
Establishing trust — notes Keller — is key.

Summary

Before beginning your search for the right private lender, establish your own
expectations — both general expectations and those specific to each property or
project. Iron out exactly what you hope to get out of each project — be it a one-time
payout, long-term cash flow, the opportunity to build new relationships within the
industry or mixture. Establish your baseline for each project — including what you
expect from the lender themselves — and go from there. Next, determine whether
trapping or hunting — or a combination — is the right method of attraction for you.
Finally — after you have found one or more lenders — focus on creating the best
outcome for that(those) lender(s) in order to retain their business. Build a genuine
relationship based on trust and truth.

About Max Keller