How do you draw in potential investors?

Question

Hello.

My father and I build duplexes around central Oklahoma. Right now we have units available in Mustang and Yukon, but we are fixing to start developments in Bethany, more in Yukon, Stillwater, and more in Mustang. We build north of 50 a year and sell primarily to investors.

With the interest rates rising, our normal group of investors that would come in and buy 5-6 houses at a time has slowed down to maybe 1-2 at a time. Our broker just keeps trying to give incentives. So we are now working on leasing some of the properties that are close to maturing and we will sell the units with them leased if it comes to it.

I am curious what you guys do in this situation or how you attract new buys/investors that are available.

Drew Sygit · Answer

Interest rates have made it difficult for investors to cashflow.

So, do what many builders are doing and find a lender that can do an interest rate buydown that you can pay for that gets the rate down.

I see many builders advertising rates of 4.875%.

Don Konipol · Answer

Instead of just selling the properties you build to investors, consider becoming a sponsor and syndicating the properties. You supervise property management, secure debt financing, and oversee the investment for a fee. This brings in the very passive investor who wants to invest as a "limited partner" (or non managing member if an LLC) rather than the ones that want to own 100% of the property outright. My suggestion is to "package" say a half dozen of a dozen duplexes into a syndication package. Best to comply with Reg D 506C so you can use solicitation and advertising to reach potential investors. If you do a series LLC you will only need to pay an attorney for one Series D package (Private Placement Memorandum, Operating Agreement, Subscription Agreement, filing with SEC and filing with state securities blue sky regulators, as well as filing fees). You should expect to pay $15,000 for the work by an experienced competent attorney. While there are AI generated alternatives, this path is probably 2 -4 years away from being confidently reliable as a "one size fits all with general modifications" may not provide the lawsuit protection you'll want.

Syndication Attorneys, PLLC and WEINGOLD LAW - PPM LAWYERS are the two I’ve used

Nyisha Walton · Answer

Brett, selling leased units is a smart move, because a buyer financing with a rent-based loan can qualify on the actual lease instead of an estimate. Pairing that with the seller credits you already offer gives buyers a clear payment story on each unit, which can make it easier for them to take more than one. If you hold some units yourself, a portfolio loan that refinances several duplexes at once is another option worth comparing. I'd be glad to walk you through how buyers usually finance these, or connect you with a teammate who works with builders. How many units do you have leased up right now?

Denise Supplee · Answer

With rates where they are, I don't think incentives alone are going to bring all of your old buyers back. Leasing some of the completed units is a good option, especially if you can show investors what the property looks like as a rental. I'd also look at smaller investors who may not be able to buy 5 or 6 at a time but could buy one or two. Make the numbers easy to understand; purchase price, expected rent, expenses, and what the property should actually cash flow. You may find that there are buyers out there, just not the same buyers you've been selling to.

Brett Mason · Answer

Hi, Stacy! We are actually already doing that so the buyer can buy down the interest rate!

Devin Peterson · Answer

With rates where they are, a lot of investor buyers for new duplexes are financing with DSCR loans, so what they look at first is rent versus the full payment (principal, interest, taxes, insurance, HOA). A few ideas:

1. Market to investors with a simple pro forma: projected rents (ideally backed by a rent survey or an appraiser's rent schedule), taxes, insurance, and what the payment looks like at today's rates.

2. Seller credits toward a rate buydown can help the numbers work for a buyer.

3. If units aren't selling, holding them and refinancing into a DSCR or portfolio loan after completion and lease-up is another exit.

4. For raising capital on the next build, local investors often like either a fixed-return note secured by the property or a JV split. A one-page deal summary shared with your existing network is a good start.

Stacy Raskin · Answer

If the properties are going to be non owner occupied, there are DSCR loan programs where there can be up to 6% of the purchase price for seller credits. So for a math example, a $300K purchase price could get up to $18,000 in seller credits. Seller incentives can help to bring down the rate which can help with getting the investors to act as that can help with increasing the monthly cash flow and decreasing closing costs depending on how the seller credits are used. Happy to connect to discuss further.

Chris Seveney · Answer

I would get a line of credit from a bank versus bringing in investors.

How do you draw in potential investors?

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