This past weekend, I went to a Fast Track to Cash Flow event. This is a financial seminar put on by a Canadian affiliate of the Rich Dad, Poor Dad series, and the goal of the seminar is to get people to think differently.
One of the exercises that the organizer of the event had people do is get us all to believe that it’s easier to raise money than it is to find a good deal. In other words, raising money to invest in a deal is easy but finding that deal is tough. So, if you find a good real estate investment property but don’t have enough money, you can joint venture with a bunch of other people to raise it and it should be no problem.
To prove his point, he asked for a few volunteers to go home that night and try to raise capital. The pitch was that the volunteer was to phone people that they knew (family and/or friends) and say that if they could find an investment deal with positive cash flow, would they be interested in investing money with them on a joint venture? Before I continue, dear reader, ask yourself the same question. If I asked you the question: if I found an investment but didn’t have enough capital to finance it, would you consider joint venturing with me (ie, with me, Cool Spot)?
The organizer’s point the night before that these people would all have an easy time raising the money. The next day they came back and all came up on stage and he asked them how it went. All the people made a few phone calls, most to family but some to friends, and they had commitments for between $35,000 to $100,000, all in the span of 24 hours. Indeed, that is impressive.
But is it? I tend to be very skeptical. While people say they are willing to do an investment deal, when it comes time to actually pony up, people have many more excuses than they do money. I know, it’s happened before. When I was starting an investment club at work, a lot of people were interested in it. When it came time to actually put money down, the excuses for why they couldn’t do anything were flying about left, right and center. They were buying a house, they had to pay off this debt, they had to pay off that debt, they didn’t have any money right now, etc, etc. This happened over and over again. My point is that it’s easy to raise soft money (money that people say they will give) but it’s hard to actually get them to open the purse strings.
While I think that going to friends and family to raise money can be a good idea, I think it makes more sense to go to friends and family who are already experienced investors and are used to putting money down. These people, when they say they’ll put money up for a deal, will actually put money down on the deal. They’ll come through. Friends and family will be blinded by greed but reality sets in when it comes time to make a commitment. Experienced investors will analyze the deal and make the commitment early on. My second point is this – beware when you raise money because you haven’t raised it until you’ve actually raised it.
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