Commercial Real Estate

5 Myths Holding You Back From Raising Capital for Real Estate Syndications

Expertise: Personal Development, Commercial Real Estate, Real Estate News & Commentary, Landlording & Rental Properties
99 Articles Written
TRUE versus FALSE written on the white arrows, dilemmas concept.

Do you believe in myths?

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Myths have been around since the world began. Some (like Santa Claus) help us enjoy life and create memories. Others cause great destruction, poverty, and death.

While cultures and nations enjoy and contend with the effects of myths and legends, my concern is with the myths that may be holding you back from reaching your destiny. In the real estate realm, many of these myths surround the subject of raising capital.

In a previous post, I discussed how an embarrassing call with my mentor and a parable from a random podcast changed the trajectory of my career and helped me raise tens of millions of dollars for commercial real estate syndications. I credit this experience with the opportunity I have today to join hundreds of investors and friends to participate in an array of highly profitable self-storage, mobile home park, and multifamily deals.

The other day I was talking to my friends and fellow fund managers, Annie Dickerson and Julie Lam, of Goodegg Investments. We were discussing the myths that hold people back from raising capital. I loved their thoughts on this topic, and they kindly allowed me to share them with you.

I hope you benefit as much as I did.

Myth #1: You need a big Rolodex of high net worth individuals.

Are you old enough to remember “the Rolodex?” Some of you may need to Google that word.

I’ll save you the hassle. Google says that a Rolodex is “a desktop card index used to record names, addresses, and telephone numbers, in the form of a rotating spindle or a small tray to which removable cards are attached.”

When I attended sales training in the ‘90s, trainers would regularly talk about the importance of “building your Rolodex.”

While it’s true that having a list of contacts who know, like, and trust you is important, you don’t have to have these as a prerequisite for raising capital.

rolodex contact information spindle on desktop in black and white

I didn’t. I did my first few dozen real estate deals with friends who partnered with me to provide capital. But when I wanted to expand, my list was very short (as I mentioned in the previous post).

Start with people you know. As they invest with you, you can leverage your experience to reach others outside of your network. Treat them with integrity, communicate consistently, and do a regular stream of solid deals. Then, watch referrals start coming your way.

Myth #2: You should wait until you have a deal under contract before you approach investors.

This myth is surprisingly prevalent, and I can’t imagine how many deals it has killed and how many reputations it has tarnished. The corollary to this myth is the lie that money always finds good investment opportunities.

Not true.

It seems easier to beat the bushes for deals than to ask for money, but this is most often out of order. It takes a lot of time to build trust with investors, so you should start before you have a live deal with a deadline to raise capital.

Related: 7 Truths About Private Money That Will Help You Raise Capital

Start by educating investors about syndications, and then show them a sample deal. Ask them if they would invest in a deal like this one. Why or why not?

That way, they are ready and primed to invest in a real deal when you have one.

Myth #3: I’ve never raised any money, so I won’t be good at this.

In reality, this is an occasion for a mindset shift. You’re not asking them to do something that is not good for them. You are providing them with an opportunity to participate in something that will increase their income and build their wealth.

My coach, Dan Sullivan, defines selling as, “Getting someone engaged in a future result that is good for them and getting them to emotionally commit to take action to achieve that result.”

Young bearded man in glasses showing OK gesture and blinking at camera with overconfidence

With that definition in mind, author and marketing genius Joe Polish asks, “How many breakthroughs would we have missed in the past 100 years without selling? Martin Luther King Jr. got people ‘intellectually engaged’ in a future result that got people to commit to ‘take action.’ So did Mother Teresa and JFK. So did Henry Ford and Steve Jobs.”

Imagine that, rather than twisting their arm, you are offering them a platter of gold bars. It’s not free to acquire, but the payoff can be substantial. Forget the image of the sleazy car salesman trying to swindle someone into buying a lemon to line his own pockets. If you are offering great real estate investments, that is not you.

Myth #4: You need a fancy website and logo to get started.

I believe in nice websites and logos. We are upgrading ours this month.

But raising capital is all about creating connections with people and educating them on the opportunity. Many people want to be involved in real estate investing, but they don’t know who to trust or where to start. You can be that onramp for them.

You need a basic website and logo. But your character, your track record, your team, and your messaging are much more important than the design. Speaking of team…

Myth #5: You can go it alone.

Syndication is a team sport. Raising capital is a crucial part of it. There are many moving parts, and it would be very difficult to do everything by yourself—especially if you’re new to it. Instead, learn to leverage partnerships to grow your business more effectively.

Business and life thrive when all of the players are working in the realm of their distinctive design. When all of the players stay in the lanes where their talents and experience shine brightest, everyone will enjoy the most fun, maximum productivity, and the highest profits.

racially diverse group of young people with hands stacked on top of one another standing in semi-circle

On a macro level, this works when you allow a high-earner (like a dentist, doctor, or IT professional) to stay in their lane creating income by extracting and filling and cleaning teeth—while you and I help them create passive income and wealth in real estate investing.

Related: How to Build a Highly Effective Real Estate Team

On a micro level, this works for you and your team by working together to make something far better than anyone could create on their own. Your team may include brokers, asset managers, accountants, attorneys, property managers, maintenance, and much more.

As someone raising capital for the team, you play a significant role. The deal won’t get done without the capital. But it won’t perform well without all of these roles and being properly executed by those who specialize in each.

Summary

As I wrap this up, I am including a table that overviews what I discussed above. And I want to encourage you to learn more about Annie Dickerson’s and Julie Lam’s program.

What myths have been holding you back from raising private capital for real estate deals? How have you overcome the obstacles, or how will you do so starting now?

Weigh in with a comment below!

After graduating with an engineering degree and then an MBA from Ohio State, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a...
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    Nick B. Investor from North Richland Hills, Texas
    Replied 12 months ago
    I have a problem with myth #2. If I show investors a sample deal and they get interested, how much time do I have to find the actual deal? I think that time is very short while it may take years to find a right deal. How do I keep investors interested for years without offering them something? I don't want to do a mediocre deal just to get it done and I definitely don't want to lie with a rosy proforma to sell that deal to investors. So it all comes down to finding a screaming deal. Without it everything else doesn't matter.
    Nick Falcone Foreclosure Specialist from Grosse Pointe Shores, MI
    Replied 12 months ago
    You won't make it in this business if it takes years to find a good deal. You will have to increase the areas you look for deals in or the types of deals that you consider or bring in a partner who can locate them faster.
    Jacob Huston Lender from Chandler, AZ
    Replied 12 months ago
    Hi Nick, I think the point of showing potential investors a sample deal is just to further educate them on a flavor of investment they may not be particularly familiar with. This way when you approach them later wit a deal under contract they already have some familiarity with what a syndication deal looks like and you won't be talking to them about something they have never heard of or don't trust. I would agree with you that it probably doesn't make since to present a sample deal to someone who has invested as an LP multiple times over and is familiar with syndication deals, but it may be a more valuable strategy for investors more accustomed to investing in stocks and bonds or other non real estate opportunities.
    Annie Dickerson Real Estate Coach from Oakland, CA
    Replied 12 months ago
    Hey Nick, you're absolutely right - you shouldn't do a mediocre deal just to get it done. The idea behind walking investors through a sample deal is to help them envision what a real deal might look like and to contemplate investing their money into such a deal. Because the minimum investment is often $50k+, it can take some time for most investors to get comfortable with the idea of investing so much money. The earlier that you can introduce the concept and walk them through an example, the longer they have to ask you their questions, do their own research and due diligence, and get to the point where they're ready to invest with you. Even if you don't immediately have a deal available for them, that's okay. The fact that they now understand these opportunities and know these deals are out there means they are more likely to invest with you whenever you happen to get that screaming deal under contract. P.S. You definitely don't want the sample deal package to look all rosy and then disappoint them with the actual deal. You want to do the opposite. Show a sample deal with mediocre numbers. Then over-deliver with the actual deal. Hope that helps!
    Nick B. Investor from North Richland Hills, Texas
    Replied 12 months ago
    My potential investors are all well versed in the MF space. I met them at various RE events and I specifically chose those with experience being an LP. This eliminates the need of educating them but creates a high bar for an actual deal that I struggle to find.
    John Blanton Investor from Apex, NC
    Replied 12 months ago
    Great article Paul, numbers 4 and 5 really resonated with me. I think in the beginning it was easy for me to push forward solo, but have seen much more success when leveraging a team approach. Keep em coming
    Paul Moore Investor from Lynchburg, VA
    Replied 12 months ago
    Thanks so much, John! Appreciate the encouragement.
    Thomas Lorini Investor from Laguna Hills, California
    Replied 12 months ago
    Great article thank you for sharing Paul!!
    Paul Moore Investor from Lynchburg, VA
    Replied 12 months ago
    You’re welcome, Thomas!