Real estate angel investors provide funding to purchase or develop real estate. A real estate angel investor may invest to receive equity in the deal or as a loan to earn interest on their money. Either way, angel investors fund real estate deals to get a higher return on investment than they may get with other investments. If you can present the right opportunity, you may be able to get a real estate angel investor to fund your next deal.
How do real estate investors raise capital?
When a real estate investor doesn't have enough of their own money to invest in a deal, they often have to find other sources of capital to fund their project. Even with a loan on the property, they might still have to find money for the down payment, especially with a larger deal.
A real estate angel investor can be a great source of capital to get a real estate deal done. If an angel investor has confidence in how the specific investment property will perform, they may be willing to provide the cash needed to close the deal. Some investors will team up to form angel groups so they can invest in larger deals.
A real estate angel investor will usually want to see that you're investing some of your own money into the property as well. They know that you'll be more motivated to make the deal successful if you also have financial risk involved. They'll call this "having skin in the game."
How do I find real estate angel investors?
Most angel investors don't invest in real estate full time. They may have full-time careers or a business outside of real estate. That means you'll likely have to go out searching for them.
But where do you find real estate angel investors? Most investors who have raised angel capital from private investors say that networking is the best way to find real estate angel investors. Put together your elevator pitch and get out there meeting people to build your investment network.
Several crowdfunding platforms for real estate will allow you to submit deals for them to evaluate for equity crowdfunding. If they approve the deal, they will list the investment opportunity on their platform to raise funds from private investors. Submitting your deal to an equity crowdfunding platform will put your real estate investment in front of thousands of angel investors.
Who can be an angel investor?
Federal regulations limit who you can accept investments from. If you're presenting your deal to people you don't already have a personal relationship with, you can only accept investments from accredited investors. Accredited investors have to meet minimum income or net worth requirements.
You can raise money from non-accredited investors, too, as long as they are people you already have an existing relationship with and you are not soliciting to the general public.
The JOBS Act is specific as to how you can raise capital and who you can raise it from. Before offering your deal to active angel investors, you should familiarize yourself with SEC Rule 506 of Regulation D.
How do I get a real estate angel investor to invest in my deal?
There is no shortage of people looking for investors to fund a deal for their real estate company, so you want to be able to show them how your deal is the most profitable and least risky way to invest their money.
Here are the basic steps to find an investor for your real estate deal:
- Find a good deal. You want to present a deal that either has a higher than normal return or is priced well below market.
- Do your homework. Gather data on what kind of income you can expect in that market, what repairs will be needed, how much property taxes are, etc.
- Put together a presentation that's easy to understand. You want to provide all of the relevant information, but you also want them to be able to find the key points easily by scanning the information.
- Expect to pitch your deal to multiple investors. Not every deal is right for every real estate angel investor, and some might have their money tied up somewhere else. Don't get discouraged if the first couple of investors -- or the first 20 -- say no.
- Structure a fair deal. Many people looking for money are willing to give the real estate angel investor almost anything they ask for in order to secure the funding. However, you want to make sure it's a fair deal for you as well. You have to make money on the deal, too.
Keep in mind that people choose to put their money into angel investing because they're looking for investment opportunities with a lot of potential. Show the investors what sets your deal apart, and give them a reason to get excited about putting their money into your real estate investment.
Real estate angel investors are usually more interested in earning passive income than they are in managing real estate. For the right deal, they're happy to put up the capital if it means they only have to worry about cashing a check every month.
Real estate angel investor vs. venture capitalist
A real estate angel investor is a wealthy individual who is investing their own money into a deal. A venture capitalist is an investment firm that invests other people's money.
A real estate angel investor is more likely to invest in a deal that makes sense for them. They're interested in earning passive income at a higher rate of return than other investments. A major factor in their decision on whether to invest with you is how much they like you and how much they trust you.
Venture capital firms are regularly out there looking for real estate deals, and they are often pickier about what deals they will invest in. Since they look at so many deals every day, they have more options to choose from. They're also responsible for other people's money, so they have to be a lot more careful about deals they will provide venture capital for. An angel investor can decide for themselves what their risk tolerance is.
Close the deal
Raising capital for your real estate investments may seem like a daunting task, but it's an important part of real estate investing. Taking the time to learn what real estate angel investors are looking for in an investment opportunity will help you choose the deals that will attract the angel investment you're looking for. Be thorough in structuring your private equity deal, and be persistent in finding the real estate angel investors who will be the right fit for your investment opportunity.