This brings us to the third and perhaps most common reason why young businesses struggle or even fail. It is because they are undercapitalized. Business capital is absolutely the life blood that drives all kinds of businesses worldwide and real estate investments are no different. Sure, we all have to start somewhere, but think for a minute about a recent real estate investment club meeting you may have attended. Most groups have new investors in attendance and most also have some bigger players. What sets the bigger players apart from those who are newer to the business?

It could be argued that experience or knowledge is what sets apart the new investor from the one who is out there doing more and larger deals. I will not dispute that and I will also add that most every big-time real estate investor I have ever met also had a significant source of business capital with which to operate. Coincidence? I don’t think so.

My point here is not to suggest that you are lacking the tools to be a big-time investor. Quite the contrary. You are in the process of gaining the knowledge and experience to become as successful as you want to be as a real estate investor. Now, it is time to add the final piece of the puzzle: business capital. When you start focusing on raising capital as much as you focus on finding high caliber deals, the potential for your business to grow and grow quickly will go through the roof. It is a model that has worked for countless businesses over the years and it is time for you to start thinking that way also!

What kinds of business capital are there? I can think of several, some of which you may be familiar with, and some of which you may not. Either way, all of these sources of funding can be powerful ways to start capitalizing your business for the future.

1. Available cash— While I do not usually recommend overuse of your own money (the opposite of OPM), this is always something to consider if you have cash available.
2. Unsecured credit lines— these would basically be credit cards and, again, while I do not suggest frivolous use of this source, it can help fuel smaller capital needs.
3. Business or personal loans—basically, I am talking about mortgages here. Whether they are personal loans, business loans, or hard money loans, they all help you get to where you want to go with your investments.
4. Secured credit lines—these would include business lines of credit, home equity lines of credit, and the like. I always recommend caution in using lines of credit and, that said, if the return on the investment exceeds the cost of borrowing the money, it may make sense business-wise.
5. Retirement accounts—this tool has significantly grown in popularity among real estate investors and is headlined by the self-directed IRA. As with any investment tool or capital source, use this type of tool wisely and know that it is available to you.

A sixth, and perhaps the most powerful source of capital, is venture capital. Venture capital is a loan or capital contribution from an outside party that is not a formal lender like a bank. Venture capital has been a powerful business tool for centuries and it also applies to real estate investment. Venture capitalists in real estate are often called private lenders and they can draw from any of the above-listed capital resources that you can! All you need to do is promote what you do and, as needed, show private lenders the many ways that they can help capitalize your business.

Private lenders can be powerful tools in growing and sustaining your business. Remember to be smart about how and when you use it. Laws on how to properly approach private lenders, and also how to set up agreements with them vary from state to state. When you choose to pursue this valuable (and arguably unlimited) capital resource for your own business, be sure to collaborate with your power team attorney to make sure you are following the proper steps and protecting both yourself and the lenders with whom you may be doing business.

As a closing thought, real estate investment has been and will long continue to be a powerful tool for financial growth. As you grow your own business, be thinking like a businessperson in the biggest picture sense possible. Focus on not just finding deals, but also on finding business capital. You will find your business knowledge, negotiating skills, capacity to do deals, and profits will all increase more than you thought was possible!

Matt Fagerness is an instructor of the Real Estate Sales and Negotiation Advanced Training and a real estate mentor for Wealth Intelligence Academy.