I have clients that fund real estate investments as you describe. They do and have done funding for rental property, residential and light commercial developments, townhouse developments, the works. They wouldn''t invest a penny in a project that didn't show 20% return AND had their investment fully secured with 120% verifiable equity. Even then they've all lost millions in the last few years.

No one who knows what they're doing would put money into a real estate development with the promise of making a 4% return. Heck, the Dow is up 4% for the year already. And the ones who invest without knowning what they're doing lose their money fast.

Working with my developer/investor clients isn't my day job, but seeing what they do and how they do it has been eye opening. When I say they've made and lost millions of dollars, I mean many millions. And they go into every deal as protected as possible. Cash flowing a property plus 4% is insane. I hope you're making 10 times the return on your investment, when you consider your labor, time and risk.

I just don't think you have anything attractive enough to interest a professional investor. If you are shooting from the Grandma Mille market, you are opening yourself to a world of trouble. If you don't watch out you'll be selling unlicensed securities. it's not that you can't do it, but there's a lot of risk involved. It's not like Grandma can walk down to the bank and switch her account from a CD to your REIT and go from .09% interest to 4% and she can start counting her profits. If you are serious about attracting serious capital, you need to find a project that projects net cash flow of at least 20%, a business plan that will support the return you predict, enough equity to secure the investor's money, and a track record of sucess.

Edit: Buying, fixing up and renting single family houses is way too capital intensive to return much of a profit on your investment. There's a reason no big investors try this but there are a million do it yourselfers trying to turn a profit doing it. If you are serious about making a profit rehabing distressed residential property you have to go into multifamily units. Buy a distressed and trashed aprtment, condo our townhouse complex, slap a coat of paint on it and rent it out. The returns are expodentially larger than buying single family dwellings. Just run the numbers on one modest house versus the crapiest 8 plex or 12 unit townhouse you can lay your hands on.

cap rates on everything I touch are between 10-12%. cash-on-cash return is pretty dismal, but that's the price paid for 100% equity.

I realize multi-family and cheap inner city properties are where the money is at, but I'm not interested in the headaches. I decided a long time ago I was willing to sacrifice ultimate income for peace of mind. I reconsider this strategy on a regular basis, however.

I readily admit landlording can be a true nightmare. Sometimes, long hours are necessary to get a property revamped and ready to rent. The balance is restored when things are good. This year, the renters have been on time (good screening is absolutely critical), and I haven't put more than 2-3 hours a month into any one property. At some properties, the only time investment (outside of accounting) is when I apply pre-emerge herbicide on the lawn (3 times per year). Like many facets of life, when it's good, it's good. When bad, it's horrible.

Certainly, the big guys have certain advantages over little squirts like me, but being small has its advantages.

The way I see it, if I can't get money for less than say 6...6.5%, it isn't worth the effort. Sure, if I was OK being a slumlord, putting lipstick on a hundred $20k crapboxes, fleecing the American taxpayer through HUD Section 8 for $850/mth, I could justify higher interest costs. Sometimes nice guys do finish last, but I sure as heck sleep well. ;)