Where do I find investors?

July 13, 2006 11:28 AM

MoneyFilter: Where would a 21 year old college student look for investors willing to help said student get started building wealth?

I'm 21 and I want to build houses on vacant lots in cities near where I live. I am fairly sure (though I have excellent credit) I can't qualify for a $200,000 construction loan (even interest only).

So, I need people with money to help me through the first two or three projects. How do I meet these people? Where do I find an investor? What companies that make their business investing in upstarts like me? Are there parties I should be crashing?

I just want a boost into the investing world. I don't want to wait till I'm 30 to start building wealth and cashflow. I have the vision now. Please point me in the right direction.

posted by Galen to work & money (28 comments total)

The first pointer would be to pay off any debt first. Not sure if you have any, but being a really recent college graduate (22), I know from several money "experts" that you must first pay off debt before you begin investing, as most of the time your debt is being charged a higher interest rate than what you can expect from initial investing (i.e. unless you have thousands of dollars to put into investing from the get go).
posted by criticman at 11:48 AM on July 13, 2006

Do you have a business plan?
posted by jimmy0x52 at 11:48 AM on July 13, 2006

Stupid me, meant to add this...network network network. Meet as many people as you can, even if they do not seem to have too much money, as they always know someone who does (or someone who knows someone who knows someone...). Good luck!
posted by criticman at 11:50 AM on July 13, 2006

As criticman said, the sounded advice for you is to pay off any debts that you currently have before making any investments.
posted by k8t at 11:55 AM on July 13, 2006

Ideas don't make money. Money makes money.

Sorry, but it's very unlikely that people are going to give you their money to invest unless you've got some kind of track record -- why should they give it to a kid with a vision? I'm 20, and I don't exactly lack ideas, but ideas are basically worthless unless you've got the money to make them happen. And if you do have the money, you don't really need other people's ideas in order to make more.
posted by reklaw at 12:13 PM on July 13, 2006

21-year olds do not have excellent credit. Sorry you'll be hard pressed to find a traditional institution giving you any kind of line of credit without a co-signer. I don't think you'd even be able to buy a car on your own. This is no slant against you, I am 21 and have never missed a payment (beyond 30-days), carry a high average daily balance and I still need my parents to sign off on things. You do seem realistic on this though.

I have friends who do this very thing but they came from money. They are only a few years older and took a while to get started, but their niche is finding any and all tax credits and government help they can in rebuilding urban real estate in gentrified neighborhoods. They spent quite a while developing complex models and methodology to do this. They aren't flipping property in the traditional sense (as in buy, hire a contractor to rehabilitate, sell). I would suggest figuring out what your competitive advantage is, as it is fairly easy and intuitive to buy property and just build homes on it.

Remember the three "f's": family, friends, fools. Institutional investors won't give you the time of day, you're going to have to be more intrepid about this.
posted by geoff. at 12:16 PM on July 13, 2006

I would team up with a builder in your city and use his capital and your sweat equity. If these lots are in blighted areas, he may gain some valuable PR (and investment profits) by participating.

Build a track record like Reklaw said and have a damn good business plas with realistic projections like jimmy0x52 suggested.
posted by JohnnyGunn at 12:16 PM on July 13, 2006

I was pretty well connected in things like this for several years. The people who are in the position to help you get people with the same goals as you have shooting ideas past them all the time (daily, more than daily for some). Unless you have a personal connection (family friend, illegitimate child) with one of them, you are better off looking for an outsider with enough money to cover the mistakes.
posted by 517 at 12:22 PM on July 13, 2006

the sounded advice for you is to pay off any debts that you currently have before making any investments.

That is sound advice when investing money and maintaining a normal job. Please correct me if I'm wrong, Galen, but it sounds like you want to be a full-time investor. If you wanted to be a lawyer, no one would tell you to pay off all your debts before investing in law school. I believe this is a similar situation.

I'm not advising you to act imprudently--the details of your investment idea are generic enough that it's impossible to tell how risky it will be. But entrepreneurs in other industries routinely take on massive amounts of risk and run up high interest-bearing credit card debt. It sounds like you're trying to be a financial entrepreneur. The experience gained during a first big investment will be more valuable than the cash-on-cash returns or losses would lead you to believe.

Write up a professional, well-thought-out, highly-detailed business plan. Network as much as you can. If you're in unversity, see all your professors and ask them for connections. My university had a small business program, see if yours does too and see them. Visit the local SBA office. Call your relatives. You'll be dialing-for-dollars. Give your pitch to everyone that will listen. But here's the important part: ACT HUMBLE. Nothing is more of a turn-off than a cocky 21-year old that thinks he knows it all (you don't)--be honest and act enthusiastic. If your idea is good enough, someone may bite. Or, they may see potential in you and some other opportunity may come out of this.

Again, the most likely case is that this particular investment won't happen. But if you go through the process, you'll learn a ton and other opportunities will come along.
posted by mullacc at 12:22 PM on July 13, 2006

Wait, I take that back. If you are a good carpenter and can find a small 2 or 3 man crew to work for, that's your best chance at getting into what you're looking for. Be prepared to make shit for money for the next several years though.
posted by 517 at 12:25 PM on July 13, 2006

Jimmy0x52 has it right, you need to start with the business plan. Even family and friends will probably want to know that you aren't planning to drink their money away. The other great thing you may be able to do with your plan is enter it into business plan competitions, where the prize is usually seed money for your business. Also, talk to the career counselors at your school or some management/entrepreneurship professors. They can give you advice and help you work on your plan (probably the profs more than the counselors).

As criticman said, network. Try to do it in a group you're already familiar with. Crashing isn't neccessary in some cases. For example, go to student/alumni networking receptions, meet alummi and tell them about your great ideas (be careful though, wouldn't want anyone but you to make your millions) and that you are looking for investors and/or mentors. Lots of alums (particularly those that started their own firms) would be eager to at least point you in the right direction if nothing else.

If your school allows you to contact alumni, do a search to find entrepreneurs and get in contact with them. Don't ask for money off the bat, but build a relationship and if you feel comfortable, then ask for money. Maybe even offer it as a partnership or something. You need to be able to say what's in it for your investors. You should figure that out before moving forward. No one will give you money just for the heck of it (for the most part). People want a return on their investment, what are you going to give them?

A long shot: try to get media coverage. You need to have a compelling story for this, but coverage could help spur people to invest or donate (if it's a good cause/story). Wanting to get rich and enter the investment world at 21 is not a compelling story though, just so you know :)
posted by ml98tu at 12:31 PM on July 13, 2006

What about building network contact through various online bussiness communities like ryze.com, linkedin.com, and Others
posted by bleucube at 12:34 PM on July 13, 2006

Make friends with the people who run the neighborhood organizations in your area. Do some volunteer work with them, and see if there's a way to ally yourself with their development initiatives. It's a way to build a reputation in your community that will allow you to take on your own development projects in the future, as well as giving you the opportunity to network with others who will be able to help you out - grant writers, politicians, as well as institutional lendors and investors.
posted by kelegraph at 12:52 PM on July 13, 2006

A note on business plans: they are important! For some other sources of advice on writing a good one, talk to a commercial lender at a local bank to see what items they are looking for. They will often tell you exactly what they want in terms of financial reports, estimated revenue, location, source of materials, etc.

Also, contact a local college. One thing I learned in a business course in college was that a lot of universities offer assistance to entrepreneurs who need help with business plans. Help often comes in the form of student groups or even professors. This assistance is often (and should be in most cases) free.
posted by criticman at 1:19 PM on July 13, 2006

Having been through the process of trying to raise money, let me tell you the #1 question you need an answer to:

"Why do I need you?"

If all you're proposing being is a person who does some co-ordination on a not-obscure kind of project and in exchange you're going to take a percentage of the profits then you are replaceable with someone who is simply paid a salary. Or, in the case of this kind of project, a REIT with a proven record. You need to be bringing something to the table that's a little harder to find than just an enthusiasm to get rich.

Come up with a compelling answer to that and you've gone a long way towards making it happen.
posted by phearlez at 1:47 PM on July 13, 2006

Shake the family tree.
posted by caddis at 2:01 PM on July 13, 2006

age is irrelevant. you are over 18 and can do anything a 40 year old can.

what is your credit score? do you have any income or savings?

I purchased my first house at 21. you can, too.

you should be careful of not falliing into buying overpriced property, i.e., the "desire to aquire".

but if you are in a market where prices are cheap comparative to rental incomes, you can defintely get in.

as far as construction on vacant lots; look into modular homes. they are (legally and materially) similar to site built homes (i am not talking about trailer homes, but moduler/prefabricated homes made in a factory.) it's an easier way to start and learn alot.

a factory tour of such a modular factory would not hurt your knoweledge about building in general, either.

good luck to you!
posted by Izzmeister at 2:07 PM on July 13, 2006

what state are you in?
posted by Izzmeister at 2:08 PM on July 13, 2006

age is irrelevant. you are over 18 and can do anything a 40 year old can.

Unfortunately there's no law against discriminating someone based on age when it comes to giving them money.

Buying your first home at 21 can be a heck of a lot different than buying your first investment property.

Good luck poster in any case. I'm 24 and still haven't figured this out yet. Been trying for a long time.
posted by jimmy0x52 at 2:40 PM on July 13, 2006

At this point it sounds like you want people to invest in you simply because you'd like to be rich. Since lots of people would like to be rich, but relatively few actually become rich, you've got an uphill battle. You'll need to distinguish your self. There are a lot of suggestions her for distinguishing yourself, some of them even useful.

I've got family and friends in the property game. Those who didn't come to it with money came to it by learning a thing or two about it. They did construction, or property management, or got a real estate license. And, of course, they hustled.

Maybe you can start by networking and finding someone who is already dabbling in properties on the side, but needs to bring someone on so they can scale up their operation. Help them manage their properties for 6 months and make yourself useful finding them new properties. After a year, maybe you can persuade them to let you take a crack at building a couple houses for them to flip. Do a couple of those, and then maybe you can get them to invest in one of your own projects. If not, at least you'll have experience that will help persuade a loan officer.
posted by Good Brain at 2:54 PM on July 13, 2006

you might want to consider getting a job as a loan officer.. this would help you meet alot of people in the industry and learn...
posted by Izzmeister at 3:41 PM on July 13, 2006

Why not get a real estate license, either a salesman's or a broker's license? Take the classes and then take the test.

Advantages to you:

a) You learn a lot about real estate law, especially as it relates to performing transactions.

b) You can then go to work as a real estate agent, which allows you access to many properties. Seeing what's out there will really improve your ability to value properties realistically and learn what's possible, what can be built, what works and what doesn't.

c) In the course of taking the classes, getting the license, and doing the work, you'll be meeting lots of contacts in the local real estate field, including brokers, buyers, sellers, and other people very relevant to what you want to do. Put their names, contact info, and a bit of info about them into your Rolodex (or whatever); if you make a good impression they'll remember you later.

In a few years you could have a broker's license, a lucrative career, and the set of contacts necessary to embark on phase 2 of your master plan.
posted by ikkyu2 at 5:05 PM on July 13, 2006

You could start hanging out with older people, too. A lot of older folks like real estate investments because they are tangible, have investment capital in the amount you're looking to get, and would rather have an investment that they can drive by and watch, than give their money to some Wall Street sharpie they know from Adam's off ox. What they often lack, that you are going to bring to the table, is time and energy to find good properties, and to carry through on doing the work that the kind of projects you are talking about demand.

For these people, you are better than a salaried employee, because you only get paid your percentage of the profits if they make money. As a junior partner, you have no carrying cost to them, cost them nothing in benefits, nor cause them to incur the legal liabilities of being an employer. And if you are lucky, you find an older, wiser head with whom you can truly partner to get your business career rolling.

So, where do you find such people? Depends on where you are, but in small towns around America, a lot of these people are in diners for breakfast 5 or 6 mornings a week, and at church on Sunday. Go where the retirees that aren't on fixed incomes go, and introduce yourself. Make some older friends, and ask for advice. A lot of times, money comes right after advice, if you look like a person who can take good advice and put it to use.
posted by paulsc at 7:19 PM on July 13, 2006

Everyone, thank you for your (prompt) advice. 8 hours and 23 responses! This is my first question on here and I'm impressed. My question is pretty much fully answered and now I have a lot to investigate (real estate licenses, diners full of wise people, business plans, loan officers and laywers).

I've got a leg into this industry as my dad is a developer. (But I don't want to use his money. I don't like role-conflict and I'd prefer a father to an investor.) Your advice is actually more complete than the advice I'd received from him and his partners. So thanks everyone, you've given me the first steps.
posted by Galen at 8:54 PM on July 13, 2006

21-year olds do not have excellent credit. Sorry you'll be hard pressed to find a traditional institution giving you any kind of line of credit without a co-signer. I don't think you'd even be able to buy a car on your own.

Thats simply not true. I bought my own new car at 19 through toyota... Put 2 grand down, granted my interest rate was high, but I got it in my own name on my own credit. Since then my score has improved greatly... I was recently in the high 7's (I am now 22) until a short term of unemployment brougth my daily balance up too high in relation to my total credit line. (over 20k)

I have Zero negative marks on my credit and once the balance returns to a normal amount I fully expect to be in the high 700's once again.

(P.S my parents contributed very little if anything at all to the progress and growth of my credit score, it was built with my own unending dedication not to be late on my bills)

Good luck on your goals Galen, I recently started the same and just finished the license process here in Cali for real estate ( I have one in NY as well, but each state requires their own )

Where are you located?
posted by crewshell at 12:04 AM on July 14, 2006

Galen - since you're a college student, you have a great source for advice and networking help: The Economics department. At my alma mater, the economics professors loved students with entrepeneurial goals, and were great help when students were looking for advice on investors and business plans.
posted by muddgirl at 9:35 AM on July 14, 2006

You may also want to check out Prosper. It's a people-to-people money lending site. You won't find people willing to loan you $200,000 right off the bat, but with a good business plan you can show people, you might be able to get a lot of smaller loans.

Find out who's on your local board of realtors. Those people will be able to give you good info about the homedevelopment market in town, and hopefully some hard numbers you can use in your business plan.
posted by ElfWord at 10:05 AM on July 14, 2006

I like ikkyu2's idea.
posted by caddis at 10:09 AM on July 14, 2006