| When you are raising private money to buy real | | | | college money). You just never know. So, you play it |
| estate, you typically have a target number in mind | | | | safe and aim to raise $5,000,000 instead of |
| for how much you need from investors. By | | | | $2,500,000. |
| performing a project budget and financial projections, | | | | But Adam, isn't this going to cost me money?! |
| you determine the right number. Perhaps you need | | | | You bet it will. Having more private money than you |
| $100,000 to buy and rehab a foreclosure house. | | | | are allocating to financially performing projects will |
| Maybe you need $2,500,000 to buy a commercial | | | | most certainly cost you a little bit of money. You'll be |
| building. Whatever number you think you need, write | | | | paying returns on that extra money. But, let me |
| it down on paper. | | | | address this further by giving you a third reason to |
| Now DOUBLE IT. | | | | raise more private money than you need:it's easier to |
| That's right. | | | | ask for more money in the beginning than it is to go |
| DOUBLE IT. | | | | back with your hat in your hand and ask for more |
| There's an old rule of thumb when it comes to raising | | | | later. |
| capital: always ask for more money than you need. | | | | One way makes you look intelligent and pro-active |
| This is for two reasons: | | | | and the other way makes you look unprofessional |
| 1. Your numbers may not be 100% accurate | | | | (at best) and foolish (at worst). Neither one is a good |
| Surprise! Yes, this does indeed happen sometimes. | | | | face to put forth to your private investors. |
| You plot and plan as carefully as you can, but you still | | | | There have been times in my business where I've |
| somehow come up short. That city inspector that | | | | sat on 'extra' private investor money for months and |
| gave you a list a mile long when you thought it was | | | | months because projects took longer to complete or |
| only going to be a short one. The cost over-run on | | | | the timing was delayed on a sale. Hey, this is life: |
| the rehab. Taxes went up on the property. It took | | | | things happen. Better to be prepared than to get |
| longer to sell the property than you originally thought. | | | | caught with your pants down. I don't want to go |
| Don't worry. | | | | back to my investors and tell them that my |
| This is part of business. There's no such thing as a | | | | company only achieved a 6% or 7% return on a |
| perfect budget or financial projection. But, you can | | | | project because we were capital starved. The |
| cover yourself in a major way by having more than | | | | investor might look at me and ask me why I didn't |
| enough capital on hand to deal with all issues | | | | just get more money up front. I don't want to face |
| successfully. | | | | that situation. |
| 2. You may not get the entire amount you ask for | | | | What this really boils down to is being pro-active. If |
| Surprise again. Although you may be seeking to raise | | | | you've ever read The Seven Habits of Highly |
| $5,000,000 in your private money offering, you may | | | | Effective People by Stephen Covey, which is a |
| not get the full amount in the time frame in which | | | | timeless business success book classic, you'll note |
| you need it. Certain factors outside of your control | | | | that being proactive is Habit #1. This is for a reason. |
| could affect this, such as the time table being moved | | | | When you're proactive in all aspects of your business |
| up for the property closing. Sometimes an investor | | | | - particularly with raising capital - your odds of |
| will back out of the deal (maybe junior spent all his | | | | success increase exponentially. |