Raising capital for syndications
Jordan NorthrupPro Member
Rental Property Investor · Stafford, VA · Member since 2017 · 66 posts · 23 votesRaising capital for syndications
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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votesI am merely focused on the fact there are people out there teaching you (and others) that you can become a syndicator merely by finding a good deal. I expanded upon that with my own observations on how the same individuals who are teaching this are also teaching other bad business tactics and the reprecussions that will come from the way so many are being taught. The point I was hoping to get across is the lack of consideration that's placed on what happens when money is raised and property is purchased. Just because you can find a property and raise capital does not mean you should take that next step and actually purchase the real estate.
Keep in mind, if you are talking about raising millions of dollars, you are no longer reliant on friends and family money. If this hypothetical person you desrcibe possesses the operational skills and the investment opportunity is good, there are plenty of equity placement services out there who will find the needed equity check. There are plenty of sponsors who operate in that space who will be the first to acknowledge they are not good capital raisers or maybe they merely want to focus their attention on other areas of the business and rely on service providers such as the one I am describing.
The same ndividuals who are teaching you and others to find a deal and the money will come are not teaching you to find a sophisticated check writer. They are instead teaching you to find a bunch of less sophisticated capital sources because the sophisticated equity will see through the charade. This is what I find most troubling and what more should be weary of who decide to invest in syndications. Unfortunately its getting harder and harder for anyone intersted in investing as an LP to vet the the sponsor groups as the tactics used to raise capital along with reprenstations made are increasingly falling in the grey area. I attribute much of this to the way so many are being taught.
22 Replies
- Rental Property Investor · Stafford, VA · Member since 2017 · 66 posts · 23 votes2y
Hi Taylor, thank you for the honesty. I felt the same way, but didn't trust my gut because of my inexperience in this area. It seems like raising millions would be very difficult regardless of how good the deal is. I expect that one would need lots of things moving in the same direction (network, SEC docs, platform) to raise that kind of money.
Do you have experience here?
- Investor · Winnetka, IL · Member since 2020 · 15 posts · 18 votes2y
People will have varying opinions on this, and it can go either way. Either way, it's not "easy".
The main issue with finding the deal first and raising money later is the consequences of not being able to raise enough money. You may personally lose capital if earnest deposit is nonrefundable and if you pay due diligence costs out of pocket. Also, your reputation will take a hit with the listing broker if you need to back out.
Best approach is to "raise" money first. Doesn't mean you need to have the funds sitting in an account. You want to know "if I were to find an opportunity that will help you achieve your investment goals, would you invest, and how much would you invest?" from everyone in your current network and make sure that total amount if 150% or more than the money required to close.
There are a lot of other factors to consider but the above it a good start. Let me know if you have any other questions.
- CO · Member since 2022 · 589 posts · 427 votes2y
That quote is terrible. I could find the best deal ever with 50% returns but if I can't communicate the deal clearly and explain the risk to investors, you are getting no money from them.
I would say raising money is harder than finding deals, because investors have emotions you have to navigate, where as the deal numbers are straight forward.
- Rental Property Investor · Stafford, VA · Member since 2017 · 66 posts · 23 votes2y
Thank you Gents, I really appreciate the sanity check.
- Investor · Carmel, IN · Member since 2024 · 55 posts · 22 votes2y
Hey Jordan, I would take that with a grain of salt. Yes, finding an irrefutably great deal is a big step towards raising investor capital, and surely assuring to experienced prospective investors. But how appealing will it be to someone with little to no RE experience? Probably not much considering it's likely they don't even know what a great deal looks like. Investors should prioritize the operator and their track record first, then look at the market and specific deals themselves. Mediocre operators can screw up the best of deals and great operators can turn around the worst of deals.
- Rental Property Investor · Stafford, VA · Member since 2017 · 66 posts · 23 votes2y
Thank you Dimitrius. In your opinion, what is the best forum in which to raise money? Does one post on BP, social media, friends and family, personal business connections? What is the best way to raise and hold the money while you search for a deal? Do you create a separate LLC to be the Fund of Funds (per SEC) and have investors contribute while you seek to place the capital?
- Investor · Carmel, IN · Member since 2024 · 55 posts · 22 votes2y
Of course! It's always best to start out with your personal network: friends, family, personal business connections. Regarding a method to hold the money while you search for a deal, I would consult with your trusted attorney to keep you out of an orange jumpsuit! :)
- 2yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Jordan Northrup This is the wrong mentality when it comes to raising money. Based on the train of thought you shared you are completely ignoring a critical piece of the equation which is your own capabilties and whether you have the ability to execute on the opportunity. While I don't know your personal capabilities or background, the objective should not be to merely purchase real estate, it should be to execute on an opportunity where you do right by your capital providers.
I suspect the sources you are referring to are the same who educate others on associating with more established sponsors to give the perception that more of a track and experience exists. As bad as some syndications are currently performing it will only get worse if those without the expertise are armed with the liquidity to make purchases and that's what's happening. So much focus is placed on capital raising and sourcing opportunities but good sponsors are experienced operators. All of a sudden this is no longer necessary with the way so many are being taught.
- Rental Property Investor · Stafford, VA · Member since 2017 · 66 posts · 23 votes2y
Stuart, I'm not ignoring anything. I'm fully aware of the need to source and execute opportunities in a way that provides value to the investor. The entire point of the thread was to evaluate the statement that I've heard many heavy hitters utter on the BP podcast and in BP books. I'm asking if the statement is misleading, that's all. The premise of the statement is that if you can find an incredible deal, the money will find you. I haven't done a syndication, but I suspect that it's much harder to raise $10M than it is to find a good deal. Do you agree or disagree?
To your point, someone may be experienced in deal sourcing, underwriting, and management, but lack the charisma or extensive network to raise multiple millions at once. Both things can be true at one time. It doesn't mean that the operator is ignoring their own abilities. Ability and experience come in many forms. Are you suggesting that an executive in corporate America doesn't have the ability to manage a team, leverage those with experience, and deliver value for the shareholders? Of course they can.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Jordan Northrup:
I've heard multiple multifamily syndication sources say that if the deal is good enough, the money will find you. Thus, focus on finding a great deal and raising the millions of dollars you need will be easy. Does anyone have experience here? Do you find this to be true?
Do these sources also have a training program?
Right now, raising money is extremely difficult especially for MF. If you were a first time sponsor I would say you would have to bring on an experienced co-gp. Why? Because there are a lot of sponsors with experience (which varies) who are in the middle of capital calls, raising pref equity or just walking away from deals or losing deals. So if I am a limited partner, what sense of comfort would I have that a first time sponsor was able to find a killer deal and manage it by themselves when others cannot.
So to answer the question, this statement would get 3 washington post pinocchios.
7e investments53 Reviews - Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes2y
Agree with the concept of spending more time searching for deals rather than money. Too many investors these days spend 80% of their time sourcing LP's and little in the way of finding actual value. With that said, you have to have at least some track record to lean upon. Best bet starting out is to partner with a GP who can bring some experience/track record to the table.
- 2yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
I am merely focused on the fact there are people out there teaching you (and others) that you can become a syndicator merely by finding a good deal. I expanded upon that with my own observations on how the same individuals who are teaching this are also teaching other bad business tactics and the reprecussions that will come from the way so many are being taught. The point I was hoping to get across is the lack of consideration that's placed on what happens when money is raised and property is purchased. Just because you can find a property and raise capital does not mean you should take that next step and actually purchase the real estate.
Keep in mind, if you are talking about raising millions of dollars, you are no longer reliant on friends and family money. If this hypothetical person you desrcibe possesses the operational skills and the investment opportunity is good, there are plenty of equity placement services out there who will find the needed equity check. There are plenty of sponsors who operate in that space who will be the first to acknowledge they are not good capital raisers or maybe they merely want to focus their attention on other areas of the business and rely on service providers such as the one I am describing.
The same ndividuals who are teaching you and others to find a deal and the money will come are not teaching you to find a sophisticated check writer. They are instead teaching you to find a bunch of less sophisticated capital sources because the sophisticated equity will see through the charade. This is what I find most troubling and what more should be weary of who decide to invest in syndications. Unfortunately its getting harder and harder for anyone intersted in investing as an LP to vet the the sponsor groups as the tactics used to raise capital along with reprenstations made are increasingly falling in the grey area. I attribute much of this to the way so many are being taught.
- Rental Property Investor · Stafford, VA · Member since 2017 · 66 posts · 23 votes2y
Stuart, I agree with everything you said 100%.
Yep, 100%. People tend to forget syndications are an advanced structure for experienced investors and it absolutely comes down to what we're seeing on social media or any other quick entry points to CRE.
"millions will find you if a have a good deal" I think you're missing the rest of that sentence which is "buy my course to learn how".- Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes2y
False. Raising capital is never easy, no matter how good the deal is.
That being said, an attractive deal will certainly make the capital raise "easier".
While you are searching for deals you want to simultaneously be building you investor network.
Starting with friends and family is generally the best place to start.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Jordan Northrup:
I've heard multiple multifamily syndication sources say that if the deal is good enough, the money will find you. Thus, focus on finding a great deal and raising the millions of dollars you need will be easy. Does anyone have experience here? Do you find this to be true?
This is my take as LP right. See for us credibility is very important. Syndication A is 900 employee with 30 years track record, Syndication B is 1 year syndication graduated from Cardone school of institution run by three people, the Syndication A offering lets say conservative 10% IRR Class B Core ; syndication B like you offering value add somewhere in Dallasville Class C value-add promising 15%IRR. For more experienced investor, we choose to invest at syndication A because of the experience and how conservative they are. It' no longer about "good deal", we know these days "good deals" is almost no longer exist in practice after the money deployed. So if you someone that's totally new, your target for LP investor is the newbie too that doesn't have much experience in this type of investment.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
@Jordan Northrup, the others hit on this, capital is by far the hardest part.
I am not sure what your experience is in real estate. I know "first time" operators that have raised $50mm blind pool funds, but "first time" means they have 30+ yrs of experience in their specific asset class of real estate.
If you have owned a few rentals and done some flips, I would say you are going to struggle to raise any meaningful capital. Because, even if you have the biggest grand slam, sure thing deal in the world, you don't have any trust from investors. So they will see you projections and assume you don't know what you are doing.
At the end of the day, if you are going to be a syndicator, you are basically becoming a marketer.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Evan Polaski:
@Jordan Northrup, the others hit on this, capital is by far the hardest part.
I am not sure what your experience is in real estate. I know "first time" operators that have raised $50mm blind pool funds, but "first time" means they have 30+ yrs of experience in their specific asset class of real estate.
If you have owned a few rentals and done some flips, I would say you are going to struggle to raise any meaningful capital. Because, even if you have the biggest grand slam, sure thing deal in the world, you don't have any trust from investors. So they will see you projections and assume you don't know what you are doing.
At the end of the day, if you are going to be a syndicator, you are basically becoming a marketer.
super nice and direct explanation.
- 2yJoshua ChristensenPro MemberReal Estate Broker · Albuquerque, NM · Member since 2015 · 285 posts · 232 votes
That line "the money will follow the deal" is a great line used in classes to sell.
In my experience, you have to be "raising" awareness of offers and build a nice investor list that will have opportunity to see the deals you bring. They are not giving you any money only joining your portal. If you've done a good job nurturing your list, when you have a deal to present, the raise will be easier, but not perfect.
You have do both. Find investors & deals simultaneously.
We made that mistake on our first one. We didn't have a big enough list and fell short of our raise which killed the deal. Licked our wounds and kept going. Lesson learned.
- Investor · Chicago · Member since 2022 · 128 posts · 85 votes2y
Quote from @Jordan Northrup:
Thank you Dimitrius. In your opinion, what is the best forum in which to raise money? Does one post on BP, social media, friends and family, personal business connections? What is the best way to raise and hold the money while you search for a deal? Do you create a separate LLC to be the Fund of Funds (per SEC) and have investors contribute while you seek to place the capital?
Social media is big here. check out what syndicators are doing on Linked In to raise capital. you can learn a lot.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
There is no best forum
You can post to BP, LinkedIn etc but those avenues are not places where you say “give me money” or “invest in this deal”
People on most sites will want to build brand authority.
Raising money simplified is sales. So you need to determine who your customer is, what is your value proposition and how you get them over the finish line whether it be online in person or a mix of both
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