The Challenge of Equity as You Grow

One of the biggest challenges investors face as they scale and take on more deals is securing sufficient equity. Even with higher-leverage loans which we provide, your equity reserves can deplete quickly when juggling multiple projects. So, how can you ensure you have the necessary equity lined up to avoid losing out on opportunities?

1. Giving Away Profits (Splitting with JV Partners)
2. Raising Equity as Debt (Higher rates think 13%+)
3. JV Structure – Combo of Both (Fair rate + Small Portion of the Profit)

Let’s break these down:

Raising Equity as Debt 💳

Raising equity through debt, such as a second lien on the specific deal, is often the smarter financial choice. Typical rates for this type of arrangement hover around 13%+, which is significantly cheaper than sacrificing 30-50% of your deal’s profits to equity partners.

For example:

• Debt option: Pay 13% interest.
• Equity option: Share 30-50% of your profits.

When to Consider Equity

While debt is generally preferable, there are scenarios where giving up equity can be justified. High-end deals, such as flips with an ARV of $2-5 million, often come with significant holding costs. These costs can erode your profits if the property doesn’t sell quickly. In these cases, having an equity partner who shares the risk might be a strategic move so you can be a patient seller to achieve the maximum sales price.

Joint Venture Structures: Leveraging This ARV Mastermind 🤝

In a private group like the ARV Mastermind, you have access to an incredible resource – everyone in the group has unique strengths and assets to bring to the table. For example, some investors who are contractors or have inhouse construction have access to unbeatable construction pricing, Others may have a lot of capital or private investors with deep pockets. Maybe its your first ADU deal and you want to cut someone in who has done it before just for advisory. By cutting them in on the deal, you can raise the equity or expertise needed to execute projects successfully. A joint venture allows you to pool resources, share risks, and leverage each other’s networks to maximize returns. Don’t hesitate to reach out and explore potential partnerships within this group—including with me.

How to Find Private Investors and Present Deals 🏗️

There are several avenues, including personal networks, real estate investment groups, social media platforms, and professional networking events. Starting with friends and family is the most common and most successful avenue to start, as these folks already trust you. To effectively present deals, create a professional pitch deck that highlights your track record, including past successes, return on investment, and market expertise. The deck should also clearly outline the deal’s potential, projected cash flow, exit strategy, and risk mitigation plans.

Equally important is having a well-drafted contract that clearly spells out the terms of the loan / investment, including interest rates, repayment schedule, and any applicable fees. The contract should also address how losses will be handled, dispute resolution processes, and include a mediation agreement to prevent potential conflicts. Transparency, professionalism and legal safeguards are key to gaining the confidence of private investors and building long-term partnerships.

Key Takeaways 📚

There are plenty of ways to raise capital for your real estate deals, but my advice is: don’t overthink the structure early on. The most important thing in the beginning is getting deals done and building momentum. As you gain experience, better financing options will naturally present themselves. If you can raise debt to cover your gap funding—great. But if that’s not on the table and the only way forward is giving up a

Plan Ahead: Don’t over extend yourself! Ensure your equity sources are lined up before pursuing multiple deals.

Leverage Debt Strategically: Use second liens or similar options to minimize your cost of capital.

Consider Equity for High-End Projects: In specific scenarios, sharing profits might be worth the trade-off to mitigate risks.

Have a Clear Contract with defined terms on each deal. How are profits and losses split ? 

Don’t be afraid to bring in JV partner if they bring something unique to the table

Final Thoughts:

There are plenty of ways to raise capital for your real estate deals, but my advice is: don’t overthink the structure early on. The most important thing in the beginning is getting deals done and building momentum. As you gain experience, better financing options will naturally present themselves. If you can raise debt to cover your gap funding—great. But if that’s not on the table and the only way forward is giving up a piece of equity, don’t let that stop you. Do the deal, learn, and keep moving. That’s exactly how I got started too.

If you’re struggling with how to figure this out on a potential deal and want to book a 15-minute call with me, I’m happy to help. Click here to book a call.