One of our properties in Philly sold this past week! It's really exciting when a project goes full circle without a hitch.
I had two partners on this deal; Francis Mangubat and Lawrence Resnick. Together, these guys co-founded the Advance Philly real estate sales team. If you, or someone you know is looking to buy or sell in Philadelphia, please reach out to them first!
Today's post is a journal entry from January 31st, 2019. After raising $75,000 from 3 people, I decided to write about how it all happened and my takeaways from the pitch process.
If you want to read this post in your browser, you can do so by clicking here. Otherwise, it's pasted below for your convenience.
How I Raised $75,000 in 72 Hours
My friends Francis & Lawrence reached out to me in the middle of January 2019 to ask if I was interested in partnering with them on a fix and flip project in the Brewerytown submarket of Philadelphia, PA. After hearing the numbers, I couldn't wait to sink my teeth in. There was only one problem. I didn't have enough money to participate!
I needed to buy time so I asked them to give me a week to decide. Fortunately, they didn’t mind waiting as they acquired the property a few days earlier and needed to wait for permits to get approved.
Francis & Lawrence used their own money to buy the property for $82K. They were seeking an investment from me for the renovation portion only, which they projected to be $120K. We all agreed the After Repair Value was ~$325K - $350K. There was more than $100K of gross margin. That's a lot of room for error.
I couldn't waste any time. If I wanted to participate in the deal, I had to raise the money from friends and family. I wanted to reach out to as few people as possible. Here’s how it all went down.
First, I sent a text to my Penn State Friends’ WhatsApp Group. It went something like this, “Hey, I have an opportunity to fund another loan on a fix and flip in Philly. Who's interested?” Across 8 guys, 4 said they were interested in learning more.
Then I sent a text to a friend from home that has experience with this type of investment. He was interested in learning more as well.
The 5 friends that were interested had a lot of good questions! They were firing them at me faster than I could answer. So I created a pitch deck in 20 minutes answering all of their questions and a bit more. If you want to see the deck, click here: Pitch Deck for 1336 N 26th Street.
After distributing the pitch deck, I received 1 immediate commitment for $25,000. The next day, a phone call to clarify a few details yielded another $25,000.
At this point, I was 50% of the way to my goal of $100,000, as I wanted to leave $20,000 for myself. So I scrolled through my phone to see who else I could invite. I sent text messages to 2 family members and 1 more friend. Unfortunately, all 3 of them said no. I’ll get into why people said no a little bit later. I just want to finish the story of how I raised the funds first.
My next move was to send an email.
The Exact Email Copy Used:
Hope this message finds you well.
You are receiving this email because you have *loosely* expressed an interest to invest in Real Estate deals alongside me in the past.
Address: 1336 N 26th Street Philadelphia, PA.
Purchase Price: $82,000.
Construction Loan: $120,000.
Total Cost: $225,000 (including carrying costs)
Estimated After Repair Value: $350,000.
Investment Summary: This is a pure debt deal. We are not taking any equity risk. If the home sells at a loss, we will still be made whole as I will hold the first (& only) mortgage against the property.
- I'm raising money to fund the $120,000 construction loan as the borrowers have already acquired the home with their own cash.
- I've already raised $50,000.
- I'm putting at least $20,000 into the deal myself
- I'm looking for 1 - 2 more people to fill the remaining $50,000 (minimum $25,000).
- The return will be 9% per year.
- The term of the loan is 12 months.
Closing Date: 2/8/2019
Funding Date: Today through 2/7/2019 (first come first serve basis)
Please let me know if you have any questions.
This email went out to 13 people. Bringing the top of my funnel to 25 people total. I got 3 replies to the email expressing interest. Of those three, one decided to invest another $25,000. Bringing my total to $75,000 across 3 people.
I funded the rest of the investment myself. I'm happy with the way things turned out. I brought on three new investors. When I perform, I am confident these guys will repeatedly invest with me. Not only that, I piqued a lot of people’s interest.
Of the 25 people I pitched, I’d say about half did not reply at all. As you know, 3 said yes, and about 7 more asked me a TON of questions to get some clarity on how it all worked. After fielding those questions, they said some form of, “Not right now, but keep me in mind for next time”.
In the sales world, they say it takes at least 6 unique points of contact with a prospective client to close a deal. I will continue to pitch my deals to the same people and sooner or later, they might bite. Or they’ll tell me to stop sending them proposals, which is fine too. I’m getting better at accepting rejection.
When I think of this process like a funnel, rejection is easier to handle. I ended up converting 3 out of 25 people. That's a 12% conversion rate. That sounds pretty damn good considering the ask was for a $25,000 investment.
Reasons For Rejection:
“Success is the ability to move from one failure to another without loss of enthusiasm.”
- Winston Churchill
The most common reasons for rejection were liquidity and the length of the loan.
- Many of my friends are savers by nature. However, most of their savings are in the form of their retirement accounts. Understandably, no one was willing to liquidate retirement funds to participate in this venture.
- A few friends are saving up for weddings, down payments on homes, or some other big purchase. So having those funds tied up for close to a year was not in their best interest.
- One friend was skeptical about the numbers in the deal, namely the After Repair Value. I tried to explain it hardly mattered as the Loan to Value Ratio was so conservative (34%). The sales price could have been $100,000 (30%) less than we projected and everyone would still make money.
Dealing With Rejection:
I had a goal to raise $100,000 on this deal and I ended up raising $75,000. Rejection is simply going to be a part of the process. Here’s how I plan to get past it:
- Focus on the opportunity offered - I can’t present these offers as if I’m asking for money. I have to present them for what they are: an opportunity to make a solid return on money that would otherwise sit in an account making close to zero interest.
- When someone says, “No”, reply with “OK, no problem, can I ask why?” - If their reason for not investing can apply to ONE other person, build it into the pitch. Either in the proposal or the pitch deck.
- For example, one person rejected me because they thought the recently sold comparable properties were not “recent enough”. I added a “Comparable Properties Currently On The Market” slide into the pitch deck.
- Stop selling once they say, “No” - This is a lesson I learned from Shark Tank. In earlier seasons, you’d see entrepreneurs try to reel sharks back in after they’ve said “I’m Out!”. The problem with trying to do that, is you’re totally neglecting the sharks that are still in. If I really dug deep, I can probably find 100 people to put a deal in front of. I need to waste ZERO time trying to convince someone who already said no. I’d rather put that time and effort into pitching the next person.
- Educate! Private Money Lending is not a common thing. It’s counter-intuitive to invest in real estate as the Bank side of the equation. I need to focus on making people feel safe. That sense of security comes through understanding.
Email me back if you want to invest in my current deal, which is this project in Westfield, NJ.