Rental Property Investor · Norfolk, VA · Member since 2018 · 85 posts · 45 votes
My partners and I are scouring our contacts and networking to piece together verbal capital investments for POF in order to submit LOI's.
My question for the BP world, is are there companies that provide the capital in exchange for equity positions? If so, I’d love recommendations, and what equity position is typical for bringing them in as a KP? Thanks in advance!
Investor · Lexington, SC · Member since 2018 · 779 posts · 501 votes
7y
@Jonathan New I agree with @Brian Burke that a POF is rarely needed. If a broker/agent is asking you for a POF it means they don't think you know what your talking about OR they are inexperienced themselves and don't know what they are talking about.
If a POF is actually needed then it is usually just for the EMD money and not the entire purchase price.
Another rule of thumb when getting verbal "commitments" is to make sure you get twice as many commitments for the amount of money you will need in order to make sure you can lock it up quickly. Many people will tell you "yes I will invest in one of your deals" but for one reason or another they don't end up investing when it comes time to wire funds.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
7y
@Jonathan New I don't see any reason why you should need this. The last time I submitted a POF was on a single-family REO purchase. I've never produced one to accompany a LOI on a multifamily deal. Don't bring someone in and give away your profits so they can produce something that you don't need.
That said, you absolutely need to start circling capital to close on your future deals long before you start writing offers. Kind of like how you need to know the credit limit on your Visa card before you head to the mall. Or log on to Amazon, I guess I should say. No one goes to the mall anymore. LOL
Investor · Lexington, SC · Member since 2018 · 779 posts · 501 votes
7y
@Jonathan New I agree with @Brian Burke that a POF is rarely needed. If a broker/agent is asking you for a POF it means they don't think you know what your talking about OR they are inexperienced themselves and don't know what they are talking about.
If a POF is actually needed then it is usually just for the EMD money and not the entire purchase price.
Another rule of thumb when getting verbal "commitments" is to make sure you get twice as many commitments for the amount of money you will need in order to make sure you can lock it up quickly. Many people will tell you "yes I will invest in one of your deals" but for one reason or another they don't end up investing when it comes time to wire funds.
There are companies that may potentially help you raise capital and with other functions on a deal. Keep in mind if you plan to bring someone on a deal purely to raise capital for a syndication, they'd have to be a licensed broker.
In terms of pay, I don't think there's a typical equity position rule. Everything is negotiable. However in order for a third party company decide whether to work with you, they'd probably ask about your track record. This is one of the most common investors' questions as well.
Rental Property Investor · Salem, OR · Member since 2017 · 696 posts · 660 votes
7y
@Jonathan New I agree with @Brian Burke and @Dan Handford ....I need a POF for a 100k beach cottage but not a 3.4 million apartment building..haha..or a 2.2 either.
Now, you might get asked for the lender's contact info for the deal and you can bet that if the broker hasn't worked with you before that they will be calling them. Are you trying to do full cash buys or are you bringing together investors for the down payment and if so, who is handling the financing?
Investor · Lexington, SC · Member since 2018 · 779 posts · 501 votes
7y
@Alina Trigub If the person is raising money and they are on the GP side of the deal the person does not need to be a broker-dealer. If the person is not on the GP side and are only raising money for a deal then yes they would need to be a broker-dealer according to SEC regs.
@Jonathan New a KP/Gaurantor and a GP investor can be two different people, entities, etc. What each will cost you depends a lot on your track record, team and value you bring to the table. If I had to read between the lines I'd say you're biting off more than you can chew.
It might be best to crawl, walk and then sprint! There are no shortcuts. If you need 10 minutes of feedback on your current situation on how you might structure your GP lmk and I'll make it happen my man!
Rental Property Investor · Norfolk, VA · Member since 2018 · 85 posts · 45 votes
7y
Thanks all for the responses. I am sure that my multi-family in-experience is absolutely beeming off the screen right now, which is why we are partnering up with more experienced investors for our first deal or two.
@Brian Burke Thanks for help. We certainly are doing precisely as you suggested in raising our own capital first. We have access to a couple of off-market deals, so getting access to extra capital to make bigger deals possible (even at a cost to our GP position) or in the event that more-than-anticipated amounts of verbally committed investors back out is a concept that we are exploring.
@Dan Handford Thanks for that and for the DM. I'll be scheduling a call shortly.
@Alina Trigub That's very helpful advice that I had not thought of, but it makes perfect sense in the regulated world of syndication.
@Richard Sherman We will be raising the downpayment, syndication fee, and repair budget. We have a local bank for the financing, but they don't do commercial loans greater than $5M, so we are vetting other lenders at this time. Ah, the problems of breaking into new strategies.
Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
7y
@Jonathan New like many have said POF shouldn't be needed. As far as the capital raising goes, yes, there are people/companies that can raise cap for your deals. Are they easy to find? It depends how much leg work you've already done. There are many operators out there with large investor bases but no deals. If you have a good deal that operator may want to JV with you and bring in their network of investors. A good rule of thumb is to have 3x commits compared to what you actually need to for the deal. You will get a lot of people who say yes yes yes and when it comes time to fill out docs for a deal your yeses will start to diminish.