Raising Capital - Overcoming a few obstacles (3 Questions)

Buying & Selling Real Estate
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Raising Capital - Overcoming a few obstacles (3 Questions)

David F.
Ontario · Member since 2008 · 30 posts · 0 votes

My partner and I have a combined 10 years experience in real estate investment analysis and leasing and have decided that it is time that we start investing for ourselves. The only issue is that neither of us have any significant capital to invest and will be 100% completely dependant on investors to fund our first few properties. Here are the issues:

1)How do we overcome the question "why do I need you guys, I can just invest myself?" Essnetially our focus is on multiresidential properties working with our network of brokers. Ultimately most people we will contact would/should ask that question and say "I can find a broker myself and buy something similar, why am I giving up anything just for your two?

2) How do we work with brokers to begin with? That is, ultimately we are not the final decision makers and at best we would be characterized as "intermediaries". I know that brokers wouldn't be very accomodating knowing that they are going accross the city essentially showing properties to people that have ZERO say in the final decision. What can I say to brokers to help smooth that over?

3)Assuming that a partnership is not viable, but we present ourselves as property locators/consultants/(read Birddogs), what is a typical fee that we could charge for just presenting the property to them assuming that they close?

Thank you for all of your help.

Take care,

David.

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    15y

    Question 1 relates to a track record. You'll need one or raising capital will be hard in today's environment. Have you guys considered hitching your train to a local expert's instead of trying to start from scratch?

    Why are you not the decision makers in question 2? If the investors invest their capital with you then you are the decision maker.

    A proper fee for question 3 will be in line with what CRE brokers get paid.

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  • Mitch Sheean
    Real Estate Investor · Olympia, WA · Member since 2011 · 34 posts · 8 votes
    15y

    I would think the advantage would be that the money people can be hands free and get a return on their money that is better than stocks or CDs. You have the expertise to find the deal and manage the property. A lot of people with money don't want to spend their time doing that.

    I want to do a similar thing with private money investors. I would hold title and the private money investor holds a lien. They get a return on their money is all and it's secure and hands off. You hold title and get the other advantages of owning.
    I hope to find enough money to fund the entire deal putting the investor in 1st position. An alternative would be to get the seller to carry a note and be in 1st position, then have the investor in 2nd. If the seller is very motivated they may even be persuaded to be in 2nd which would make it much more attractive to the money investor.

    You need to use what you have to your advantage. Me being an experienced landlord can be a plus to an investor who will know that the property will be maintained and occupied. That's what I have to offer. Seems like you have similar experience. I just need to now find a good deal and see if the money will come my way.

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  • David F.
    OP
    Ontario · Member since 2008 · 30 posts · 0 votes
    15y

    1) You are correct and that is the hitch. We do not have a track record. With regardss to "hitching to a local expert" does that mean we are basically hooking up with another syndicator and present that there is the possibility of us bringing in investors?

    2)We are not the decision makers given that (relating to point 1), without a track record, there is no one out there that will give money carte blanche. I made the assumption that if I were to find someone, ultimately I would have to go back to them to get approval to purchase the property.

    3) That fee seems reasonable and probably something most investors would find ammenable.

    David F.

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  • David F.
    OP
    Ontario · Member since 2008 · 30 posts · 0 votes
    15y

    Mitch,

    That is exactly my pitch. I tell people that the volatility of the stock market is simply too much to bear, here you earn good steady returns and can sleep at night easy knowing that the occupany is there. Perhaps it's simply about finding that right investor.

    With your model, the investor hold the lien? Behind the bank? Or are they funding the whole deal?

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    15y

    There are co-syndicated funds that would love to have any dollars you can help pull David. Unfortunately the analysis is the easy part. Everyone thinks they add a ton of value selecting and analyzing deals. The real money is in the money. Syndicators get paid handsomely because they can raise the money.

    If you are spending the time to raise money you will want to control it. There is a LOT to this and it needs to be done per the securities laws. You also need to know how to sell properly and have a package that will sell.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    There are some people I work with exclusively that are loyal to me and then there are a ton of cash buyers with which I talk to about every 3 weeks or so.

    The cash buyers we are very cordial and friendly.They talk to multiple brokers to expose themselves to the most opportunities.

    If you control the deal you can almost name your price as many buyers will compete for it.They all want the deal.The properties are the gold everyone is searching for.

    Honestly I don't wast time with intermediaries.I have so many direct buyers that I don't need to.

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  • Brian Kilner
    Appraiser · Gig Harbor, WA · Member since 2011 · 6 posts · 0 votes
    15y

    Hi David,

    You sound like you are in the same boat I was a couple years ago. I tell you my story to see if it helps.

    I was determined to find someone to be my "mentor". I didn't have any money and had little experience with investing although I had read nearly every book. I decided to go down to the auction and just meet people; be with like minded people as much as possible. I met some guys there that ran a club of investors that invested at auction every week. I started to attend their meetings (still with no money) just to meet people with money and hear their stories. When the opportunity arose I volunteered my time to become part of the group. I started to help out once a week on Thursday to help them get ready for Friday auction. This gave me credibility in the eyes of many of the investors. I was associated with people they trusted and had some experience in pinpointing deals. After a few months I found a gentleman that had money but no real experience himself and had no time to babysit a deal. We did a deal together and made some money.

    My advice to you is many of the things "Rich Dad" teaches.
    - Build a team / Be with like minded people as much as possible.
    - Work for free to gain education and credibility in the field.

    Working for free one day a week was not great for my pocket book. I had to work extra hard to make up for it to support my family of five. The deal didn't make nearly enough to cover the six months worth of Thursdays that I worked. BUT I learned more in those six months about financing a deal and working with other investors and the education was well worth my time.

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  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    15y

    David, I have to agree with the criticism that you face with your point #1.

    If you are using RE brokers & agents to locate a property for you, then taking that info to an end buyer, you are inserting yourself into the mix and adding a layer of expense to that buyer. The buyer could just go directly to the same or other brokers and receive the same info.

    If you want to find properties for an end buyer, find unlisted properties. You will need to have a solid agreement with the end buyer first.

    Are you adding any value to the end buyer? If you locate a property that is a great deal, will the buyer/partner who puts up 100% of the funds be able to count on you to rehab the property better than anyone else? count on you to manage the property better than anyone else and provide a better ROI with fewer headaches?

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