Raising Capital from Accredited Investors

27 Replies

Hi BP Community! I am partners in a local Philadelphia group that has an apartment deal in Houston, Texas, and is currently in the capital raising stage.  While I have a network of accredited investors that I am speaking to currently, many of them have never invested in real estate before.  I am wondering what is the best way to convert them from interested to invested?  This is the best deal that I have vetted to date; however, when I go over the details with people, most think that it is too good to be true.  

@Ashley Wilson  Does the group have a proven track record? If so, highlighting that is your best bet; if you can show a portfolio (with returns) of projects that have gone through their entire lifecycle, or at least an equity event (refinance, supplemental loan, etc.), you'll have a strong case to present.

If they're not proven and are just starting out, you'll have a harder time.

Thank you Michael for your response. This is the first time this group of people are putting together a deal: however, the people of this have tremendous experience. One person alone has been investing since the 80’s and has at one point had over 5,000 doors across four states! Another person currently has over 1,200 doors!! So the members who make up the GP are definitely seasoned syndicators. 

Ashley, a few questions. 

1. Who is doing the pitch to these people. If I am getting a pitch from someone who has or has had 1,000+ doors in their portfolio, I'm going to feel decently comfortable assuming they were putting a decent amount of their own money into the deal. Do not take this as offense, but if I am getting the pitch from you, whose track record is only as a local flipper with less than a dozen deals under their belt, there is no way in hell I'm providing capital to an institutional level deal in Texas.

2. These guys with 1,000+ doors, are their properties all singles & small multis, or have they been involved in projects this size before (200+ units), because managing a portfolio of 400 individual units is worlds different from managing a single large complex.

3. Is there a local partner on the ground out there? All the numbers in the world aren't going to make me invest in a project if there isn't a strong local partner in place who knows the market, the pipeline & the local government.

4. This is an institutional level deal, what sort of cap rate is it, and if it is a decent cap rate, how did your group manage to get it over the institutional level funds that the seller knows can close cash and will have no problem on boarding a property like this into their portfolio (i.e. why isn't this deal under contract with Blackstone, haha)?

Hi Gregory:

While I appreciate your input, if you reread my question I was looking for help converting my network, not for you to belittle my experience.  This is my first time stepping up to a small part in a GP, from previously being a LP.  The BP community has always been a place for people to gain support from others, because everyone starts with their first deal, even Blackstone.  

That being said, here are my responses:

1.  These types of deals have a whole team of people involved in the process.  Anyone who has invested in large syndications previously, which it seems like you have, knows that generally the GP team is comprised of very experienced professionals, which this situation is no different.   If you look back to my initial question, it concerns converting my personal network of accredited investors with no real estate investing experience.  From my over ten years of fundraising for non-profits, and private institutions for multiple organizations and for multi-million dollar funds, the number one reason people convert to donating is based on the relationship you establish.  From everything I have read/listened to on raising funds for syndication, a pre-established relationship seems to be the most important component to getting one to invest.  And while I agree that speaking with an experienced syndicator is also a valuable component, many syndicators outsource the fundraising.

2.  Yes, the majority of their experience is in large complexes.

3. They have experience in Texas already, and they have partnered with one of the largest PM groups in the area.

4. Cap rate from T12 is 6.8. This was an off-market deal, brought to our group by a broker.

If you want to have a more in-depth conversation please pm me. 

well I know you want help but most who start usually do there first few with their own money or friends and family who do it out of knowing and liking you.  Not based on merits..

track record is critical to raising capital and with out one.. pretty tough

6.8 cap is OK I suspect the folks your talking to.. probably think they just do it themselves what value do you bring other than you bird dogged the deal.

I know syndication is kind of soup de jour but its  a very very tough thing to do starting out.. really tough..

maybe a high breed is something you want to do.. refer the deal on an you take a slice so you get something for doing it.

other wise you need to have your own cash.. take it down then back fill with investors..

I know when I raised a fund for foreclosure's I brought the first million .. proved the model then went looking for money.

@Ashley Wilson I can definitely relate to your pains with converting "interested to invested". Not sure how you present the information, but I found that a visual always helps. It can either via PPT or just a drawing board. When it comes to covering the experience, have a write up ready on the bio/experience of each of the GPs' in a deal and share it with your audience. Also, as you mentioned most people are scared, so make it a point to talk about the bad times. In other words, what's the worst thing that can happen (other than them losing their investment). For instance, if a market where the property is located enters into a deep depression, how will that impact this investment?! Ensure to emphasize that you're not betting on appreciation (if that's the case of course). So, bottom line cover PRO's and CON's of investing with you through a syndication. Your audience then has to decide for themselves whether their comfort level allows them to take this level of risk. Mind you, this risk is very calculated and base-lined of the actual T-12, and P&L's and etc. Use a stock market that has risk which is totally unpredictable. And then at the end, give your audience food for thought - whether they'd like to invest in an asset (also a security via Section 506 D) that is controlled by people's actions (aka GP executing on asset management) or  in a security that cannot be controlled by anyone even if the underlying company is doing excellent. (Hint: find an example of a well-established company whose performance is not completely reflected via it's stock.)

If you would like to chat further feel free to PM me.

Best of luck!

@Ashley Wilson

If these people have never invested in real estate you need to start with educating them on why they should consider investing passively in real estate. Highlight your own experience as an LP investor and why it prompted you to be more active as a GP. Some may have a SDIRA or Solo 401k, which they may feel comfortable tapping for the investment. 

What are the specific concerns you are receiving besides, "too good to be true"? Have you and your partners visited the property and spoke to locals? Have you reviewed comps and other full cycle deals? If so, this is the info you need to share. Based on what you've said so far, I can share some of the concerns, I would expect that you need to address.

With all the partners based in Philly, who is the local market expert and will oversee the execution? Who amongst the GPs will run point on making decisions? What is the structure of the deal? How is the energy sector impacting the Houston market and the rents in that area? How have the hurricanes impacted the rental market?

With all of that said, don't treat it as a sales pitch, simply present the opportunity and answer questions. If you start "selling" you open yourself up to a host of other issues, especially if these people are not familiar with the risks involved and all they remember is you telling them it's the "best deal you've ever vetted."  

@ashley smith you need to prepare a professional lookin memorandum and add everything in there you can and then present to your interested parties one by one and email them with a time limit so that they can do their own due diligence too and then follow up with any questions they may have and then get there commitment.

@Ashley Wilson here is some more expert info to your questions
Check out this link

https://joefairless.com/7-steps-presenting-new-apartment-deal-private-investors/?utm_sq=fqvperj39m

Agree with a lot of the comments above. You need to educate your investors. They should not be thinking the deal is "too good to be true" if you educated them properly (unless it is too good to be true). It may be too late for this deal. You really should be ahead of it. I would suggest getting a sample deal that one of your partners did within the past few years and use that to show track record. Use some of the great advice by @John Casmon   @Kay Kay Singh and @Alina Trigub

@Kay Kay Singh thank you kindly for the link and for the tips!!  We have professional presentation material already, and we created a couple of webinars too.  I will take a look at the Joe Fairless link you sent too! I have been listening to a lot of podcasts recently on apartment syndication (and obviously several of them are from his show:)).  Thank you so much for your time again!

@Ashley Wilson

This might be somewhat controversial but I would say you have to remember that you are acting as a salesperson. And while we have the idea of salespeople being "sleazy" for lack of a better word, people who really know how to sell will not come off that way. A good salesperson will instead focus on earning your "trust" and they will have many different ways to do it. They do this because they understand that without the trust, you can't get a sale. 

Not sure if you have studied sales as a general topic, but you may want to spend some time studying the topic if you are going to be the person who is going to raise the money. While I personally think there is a natural limit to how good of a salesperson one can become, there is definitely a lot to learn on the topic. For example, I'm objectively a terrible salesperson and I sort of resigned myself to that fact at this point. But learning more about it has helped me figure out how I can support other folks who are selling for me. 

Below is a link to one of the best business books I ever read. It's not focused on sales but the author dedicated a chapter to it. The author basically made the entire book free online so you don't need to buy anything although I would recommend it. It's a good read to get some of the basic concepts down. The website is great since the author provides you with further suggestions for reading for each topic that he discusses.  

https://personalmba.com/chapter/sales/

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@ Jay Hinrichs is right. Most of my clients who have not done syndications before start out doing Regulation D, Rule 506(b) deals with family and friends, who invest with them because they know, like and trust them, versus looking only at the deal and the experience of the syndication team. Once they have exhausted this network and have gained a track record be syndicating several deals, then they are able to widen their network by advertising to accredited investors. If no one on your current team has direct experience in syndicating the specific type of property you are currently trying to buy, you may want to find someone with that kind of experience to add to your team. 

If you already have relationships with the accredited investors in your network, then it really may be a matter of educating them on the syndication process and what you look for in a deal, etc, as others have suggested. You could consider holding an educational event (or series of them) to bring these investors up to speed. Doing this will also bolster your credibility as the trainer often gets viewed as the "expert".

@Ashley Wilson get your hands on as much sales training content as you can and cram 20, 30, 60 min a day. Most successful people speak of turning your car into a "rolling university." Syndication podcasts have value but remember to train yourself on business development. All the best

@Jay Hinrichs thank you for your input!  Since I posted, I have actually have had a lot of interest from my network.  The numbers are pretty strong, and have actually increased since my original post as the appraisal came in significantly  higher than our purchase price.  

I also agree that syndications are a tough undertaking, however, I am an extremely hard worker and my network knows that about me too.  The dynamic of the GP is such that we all bring an unique skill set to the table, coupled with the fact that we are all investing in the deal personally too (alongside the LPs). 

Thank you again for your input, I really appreciate it!

Originally posted by @Ashley Wilson :

@Jay Hinrichs thank you for your input!  Since I posted, I have actually have had a lot of interest from my network.  The numbers are pretty strong, and have actually increased since my original post as the appraisal came in significantly  higher than our purchase price.  

I also agree that syndications are a tough undertaking, however, I am an extremely hard worker and my network knows that about me too.  The dynamic of the GP is such that we all bring an unique skill set to the table, coupled with the fact that we are all investing in the deal personally too (alongside the LPs). 

Thank you again for your input, I really appreciate it!

 cool  good luck with it.. !!!!

Hi Ashley,

I have big time experience raising capital for syndications.  I've written blogs and been on 10+ podcasts talking about the essential tips.  Here's a couple of key tips for starters.  More nuggets in the blogs that follow.

1) Partner with experts.  That is my number one tip.  If you raise capital on deals as part of the syndication team and those team members have a demonstrable track record or members of the team have solid experiences you are way ahead of the game.  You may need to lean on the property manager, others on the team, but its key.

2) Thought Leadership.  This takes time but if you are going to be a capital raiser and make this a business (it's an incredibly attractive business btw) , don't look at it as a transactional experience.  You need to develop your own credibility by doing a variety of things around increasing your credibility.  It could be blogging, podcasts, newsletters, etc educating and giving away free content to build up your investors interest and database of investors / prospects.

3) Be yourself (authentic) - speak simply, clearly and stay on point about the opportunity and business plan.  Focus on why this deal is in a good Market - jobs/pop growth  / Deal - conservatively underwritten / Team - experienced.  Be in your investor's shoes.  Most investors are interested in cash flow, when they will get paid, when they will get their money back, how will you communicate with me, etc.  Develop FAQs and be confident. Focus more on developing a relationship than selling.  Don't sell period !  Educate / inform / provide the opportunity / ask for them to partner with you / show them how...its that simple.

https://www.biggerpockets.com/blogs/9145/67627-rai...

https://www.biggerpockets.com/blogs/9145/72807-how...

https://www.biggerpockets.com/blogs/9145/65780-syn...

@Ashley Wilson if you are a hard-worker with a deep network and you've got the track record of your partners to lean on, you will absolutely get this done!

I would add a couple thoughts to the tons of good advice you were given:

1. Desperation is a stinky cologne: You don't need any individual investor, you want to bring them in on this opportunity that you're in. Take the approach that you're giving the investor an opportunity to be in alongside you. Give them a deadline to commit (not to be pushy but just because of the DD/closing time frame) and if they aren't comfortable yet, just thank them and tell them you'll bring them the next opportunity. Create the sense that this train is moving along with or without them and either way is totally OK with you, you can always catch them on the next one. Answer questions and let them come around to it, don't hard sell.

2. UPOD - Under-promise and over-deliver. This is the key to life. And marriage. And capital raising. And eternal happiness. If you can get this concept down, you will find it easier and easier as you go to raise capital effectively. Back-in to the lowest returns/IRR you think are needed to get investors excited and market that. Then when you beat it you're an all-star.

@John Casmon thank you very much for your input!! With respect to your questions, some of them have never invested in real estate before. Therefore, when they see things like 17% IRR, and compare it to the 8% average stock market returns, they are blown away. Then when I tell them additional details, not included in the underwriting that would yield a potentially higher forecasted return, coupled with the fact that one of the GPs was in a similar deal located close by which sold after only 2 years for a 52% return (recently), it obviously excites them.

The partners have visited the property several times, have talked to locals, and have performed secret shopper.  We have all reviewed the comps, as well as other full cycle deals (for example the one I listed above).  The group that we are partnering with on the sponsor side has a relationship with the property management company in the area that also assisted in finding opportunities.  The business sector is actually one of the highest growing in the country, and the rent growth is reflective of this.  The hurricanes did not impact this area, and no insurance claim was issued due to hurricanes while the seller has owned the property (for the past 11 years).

I think you have a great point about not "selling" the offering.  At the end of the day, it's an opportunity. 

Thank you again! 

@Todd Dexheimer thank you for your post!! I think you are spot on with educating your investors.  Specifically, I think this opportunity allowed me to provide information on multi-family investing to many of the potential investors.  I am guessing my next offering will be a lot easier, as I will only be educating this network on the opportunity and not multi-family investing too!  Thank you again!

@Chris K. thank you for your post! I am going to read it tonight! I do agree that salespeople come across sometimes as sleazy, and I never want to be that person.  I look forward to the read, and can't thank you enough for taking the time to write your post.

@KimLisa Taylor thank you for your response.  There are a few GP's and several of them have a lot of experience and are approaching their networks already.  However, we are all responsible for telling our own networks about the offering. Your suggestion for an educational event is a great one, and we actually did it a couple of weeks ago.  We also recorded it, so we could distribute it to others who are new to investing too.  I plan to do a few mini educational short video clips in the future, to provide references to future potential investors too.  Thank you again for your suggestions, and your feedback!!

@Ivan Barratt thank you so much for your comments! Really great suggestions, and I think you are right.  I spend a lot of time educating myself on syndications, but I need to focus more on sales training.  I am sure I have a lot to learn in that category!  Thank you again!

@David Thompson wow!!! Thank you so much for your time, and your suggestions.  All of your points clearly demonstrate your expertise in this field!   Last weekend, I read through several of your blog posts, and you truly know this topic well!  Thank you again for your insight!