Investor · Dallas, TX · Member since 2019 · 86 posts · 123 votes
I've made my career in raising private capital and deploying it unleveraged into C class rental properties and recently for the last 3 years into Mobile Home Parks. Very conservative model that typically pays 12-15% annually to my investors.
I am in the process of raising 5M capital currently for several mobile home parks and have already been turned away by several of my long term investors because they have either:
- taken a recent HUGE loss in the market (many had margin)
- generally terrified of the economy
I'm considering raising my return to the investor to boost it to over 16-20% but wonder if that will even do any good.
I've made my career in raising private capital and deploying it unleveraged into C class rental properties and recently for the last 3 years into Mobile Home Parks. Very conservative model that typically pays 12-15% annually to my investors.
I am in the process of raising 5M capital currently for several mobile home parks and have already been turned away by several of my long term investors because they have either:
- taken a recent HUGE loss in the market (many had margin)
- generally terrified of the economy
I'm considering raising my return to the investor to boost it to over 16-20% but wonder if that will even do any good.
Raising capital is all about relationships. You need to listen close and hear what your investors are telling you I would not recommend raising your returns to that level. You will signal desperation and skepticism and send the red flags flying. The higher the return you offer the less legitimate you appear. You are just going to need to be patient during this time. Continue to build relationships for when this is over. Keep pursuing deals and and sending opportunities to investors to invest when this is over. Some will join you now but the longer this goes the more cautious investors are going to get. You can always ask for owner financing with balloon in 12-24 months. Some sellers will be agreeable due to the environment especially if they are staring to loose rents from struggling tenants.
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
I think it’s too soon considering our environment. The uncertainty is huge. I’m getting prepared with relevant marketing materials for the near future.
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
6y
I was planning to redeploy money from a project that just sold but now I decided to just put that money to a savings account. 1% interest is better than 100% potential loss.
I am waiting until the virus is behind us and will not invest in anything regardless of how good proforma looks like. People who is buying now and paying "pre-corona" prices will fight to stay afloat for many months to come. Many will not make it.
I am just a small investor but I think many other investors are thinking similarly and holding their money tight.
Investor · Indianapolis, IN · Member since 2019 · 62 posts · 64 votes
6y
@Jarrod Pettit fear is a huge component right now. With this much fear about the future many people won’t act. I think you have to stay in contact with your investors to understand what they are going through.
Many people are waiting to see what April and May look like for bad debt to see how much Multifamily and MHP will be impacted.
At some point the fear will subside and we will move forward. At that point conservative cash flowing deals will be seen as a safe haven.
I think as a capital raiser in this time you have to be patient and continue to add value to your investors by maintaining perspective that your deals still make sense in the long term.
Lender · Salt Lake City, UT · Member since 2019 · 23 posts · 8 votes
6y
Capital is still readily available--you just have to pay a hefty premium for it now. Unless it's an A-paper deal, expect investors to want anywhere from 17-25% annual yield.
I've made my career in raising private capital and deploying it unleveraged into C class rental properties and recently for the last 3 years into Mobile Home Parks. Very conservative model that typically pays 12-15% annually to my investors.
I am in the process of raising 5M capital currently for several mobile home parks and have already been turned away by several of my long term investors because they have either:
- taken a recent HUGE loss in the market (many had margin)
- generally terrified of the economy
I'm considering raising my return to the investor to boost it to over 16-20% but wonder if that will even do any good.
Raising capital is all about relationships. You need to listen close and hear what your investors are telling you I would not recommend raising your returns to that level. You will signal desperation and skepticism and send the red flags flying. The higher the return you offer the less legitimate you appear. You are just going to need to be patient during this time. Continue to build relationships for when this is over. Keep pursuing deals and and sending opportunities to investors to invest when this is over. Some will join you now but the longer this goes the more cautious investors are going to get. You can always ask for owner financing with balloon in 12-24 months. Some sellers will be agreeable due to the environment especially if they are staring to loose rents from struggling tenants.
Investor · Apex, NC · Member since 2018 · 253 posts · 215 votes
6y
@Jarrod Pettit There is capital still out there, but it's definitely constrained. The worst thing for investors is uncertainty and that's what we're in the middle of right now. I wouldn't think everything needs to go on ice, but you'll probably have a much better sense of where the world stands at the end of April than right now.
But I don't see this as a dead period I either. I'm basically doing what @Erik Hatch is right now, working on beefing up my material, automation, processes, etc... We needed an event to flush the market out and we got it. Opportunity abounds!
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
6y
@Jarrod Pettit, to echo the others: capital is still out there. You never know who cashed out at the right time, had some type of cash settlement just come in, or is willing to take a loss in the market to not have to potentially ride out further loses.
The issue I am seeing is not necessarily the capital not being available, but the uncertainty in real estate right now. Especially in any residential (multi family, mobile homes, etc). The news has been covered with job losses and moratoriums on evictions. The debate, here and on the news, is if LL can't get bad tenants out, how are mortgages going to be made.
The issue is reiterating that you are finding good deals now, and how this correction may have an effect but you are investing for 3-5-7-10 yrs down the road and can ride this out. Having sensitivity analyses for vacancy, rents, cap rates can all help people see that this is still a safe investment today.
From there, it is figuring out an expeditious way to expand your investor pool. If your pool is not ready to move today, how do you get on the radar and talking with others that might be interested?
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
6y
I wouldn't change the terms of the offering just because people are fearful and not thinking about investing. The world has completely changed in the blink of an eye and everyone is looking for some peace and certainty. There will be investors who have invested in a downturn before and it not new, some this is new and uncharted territory, while others have yet to make their first investment but are looking for their first investment and might hold off.
It's unfortunate that this situation happened during your raise process. It's honorable of you as well to reach out to others and seek what they are doing, what's working and what's not through this beautiful forum. Commonality here is investors need some peace and confidence in something right now.
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
6y
I think it is pretty simple. Would you invest the deal yourself? Investing should not be speculating, and even if you are writing in 40% economic vacancy, you are still guessing. No one has any idea how this will impact real estate. Maybe/hopefully we will have a clearer picture in two months, but if I am not ready to invest now in the deal, I am certainly not going to have my investors invest.
Having said that, it is tough if you are in the middle of a raise. If you have your investor's back, constantly inform and educate them - manage their expectations. C class will be impacted, and the returns should reflect that. Let's hope we all come out smelling like a rose.
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
@Jarrod Pettit I hear what you are saying about it being more difficult than normal to raise capital right now. I just broke over 100 units this past January and I contribute a lot of that success to using private money loans (second position notes on my cash flowing properties). Many of the loans were 10 - 20k. Once an investor/lender would lend on a property, I would include them in our WhatsApp group were they could learn about the process of investing. So they could “earn while they learn.” I was able to raise over 1 million dollars in private money over the last couple of years. But right now I’m having a harder time finding a second position private money lender to lend on one of my mobile home parks. The total income on the 19-unit park is $9500 a month and the cash flow is about $3800 a month. Since I am looking to raise 100k on this park, I can understand it being more difficult simply because the amount lessens the number of people who can lend on it, but I also think that because of the Coronavirus a lot more people are more hesitant to loan making it harder to raise money.
Investor · Dallas, TX · Member since 2019 · 86 posts · 123 votes
6y
@Shiloh Lundahl You must be a PRO to be raising 2nd lien position private capital! Kudos to you on that! What terms do you typically pay to the investors that are in 2nd lien position?
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
@Jarrod Pettit remember that the people who lend to us also get a learning experience so it is motivating for them to lend to us. We offer 8 - 10% to our lenders on these private money loans depending on the length of time they lend (1 year 8%, 2 years 9%, and 3 years 10%).
Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
6y
We have switched gears and over the next 90-180 days we will be focusing 100% on asset management. We are still speaking to sellers but not seriously underwriting deals. No one knows how bad this will be at this time.
I disagree with you that you need to increase the returns to attract more capital.
A few others have already touched on this but raising capital is about relationships. While the deal is important, and your investors should be able to perform their own underwriting to validate your assumptions, the operator is by far the number one risk.
Sure, the current environment presents challenges but your ability to communicate your objective, strategy and overall thoughts on the situation should be able to attract the right capital. Not all capital is equal as I’m sure you’ve seen.
The Operator and Limited Partner/Investor/Lender (yes they are all different) relationship is the most important piece in all of this. I’m on both sides of the table as I invest passively in apartment syndications and raise capital for my performing and nonperforming note business. In both instances, communicating clear expectations, overall underwriting style and being seen as the expert in your area of concentration is what proves to attract capital in all market cycles.
As others mentioned, I would not change the terms of your offering but I would personally hold off on considering anything at this time. The next several months are too unpredictable (IMHO) to make any serious moves.
As @Rick Martin pointed out, put yourself in your investors shoes - would you personally invest a large sum of money at this point in history?!
It takes a lot of patience and dedication to and full transparency to establish and build the relationships with investors. Here's more on the topic:
@Jarrod Pettit, I think it depends on who you're raising the money from and the relationship in place both with the investors and how much skin you have in the game.
For all my deals, I always take 40-50% of the deal, but there were a ton of buying opportunities this year even before the virus. Now with rates almost 85-90 basis points less, I'm saving almost $20-$25,000 in interest payments alone and sellers are even more motivated. I'm under contract for almost 10M worth of buildings on 3 seperate deals and the sellers have upped concessions and been far more lax in terms of paperwork and closing deadlines (the banks are all WFH and dragging their feet even more than usual!)
Now these are sellers I have already worked with and the investors are already seeing a great yield (10-12%) so while they are getting hammered in the stock market, they are willing to write 2-3x even 5x checks to me since they know that we are buying properties below market value, in great areas with growth potential and they are CF+ from day one.
Rather than position yourself as simply the real estate investment option, have you pivoted and positioned your properties as a hedge or a source of monthly cashflow to your investors?
Investor · Dallas, TX · Member since 2019 · 86 posts · 123 votes
6y
@Mo Karney Over the past few days I have seen much of you spoke of in regards to my pipeline as well. I have about a dozen or more parks under contract to close and all of the sellers started offering concessions.
You're also correct about needing to offer myself as a "hedge". Many of my investors are in the oil business and this would resonate well with them.
@Mo Karney Over the past few days I have seen much of you spoke of in regards to my pipeline as well. I have about a dozen or more parks under contract to close and all of the sellers started offering concessions.
You're also correct about needing to offer myself as a "hedge". Many of my investors are in the oil business and this would resonate well with them.
Exactly. I figured it was oil money investors because of TX, but for example, most of my investors' money if from Asia or they work here locally for Union Pacific or out east and they are high W-2 earners with massive RSUs.
Just like oil, the stock market and most of their portfolios have taken an absolute beating, they see no point in buying more shares as they get RSUs every year and past years' keep vesting like clockwork. Rather than deploy that cash now into the market and see another 20-30% loss, they want to up their buy-in on various real estate projects. For example:
I had a $4.8M 96 unit building so the DP is ~$1.2M. I was going to put up $200k and raise the $1m from 5 investors.... I have 11 investors that each want to put in $250k-$500k each. I could deleverage the property and do 50% down, but it doesn't make sense so I'd rather find more units to buy especially with the uncertainty, most sellers are discounting another 5-10% off their last asking price easily.
Have a local 176-unit building at $9.95M; I was going to offer them $9.3M, but they dropped the price down to $9.095M and are extremely motivated to sell in order to pump that cash into their trucking/logistics business. I might be able to get it for as low as $8.5M!
Rather than trying to over promise at 16-20% (even if it's possible); positioning yourself as a safe haven for your investors assets/investments will go much further than trying to lure them in with high returns. If you were doing 6-10%, offer 12% and show that your numbers are conservative and you plan for the worst and can still be net positive even in a massive downturn.
Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes
6y
I am not looking for 5 million right now, just a paltry 210k and 75k, but I am probably going to break my own rule and go back to the banks. They have been guaranteed by the Fed that their loans will be reimbursed by the FED if the notes fail. Private money cannot say the same thing. I think the big boys are the only game in town right now until cases start falling and PI confidence returns.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Jarrod Pettit if I’m a wealthy individual and I’m middle aged it’s safe to assume I’ve been investing for 15-20 years. If this is the case, a larger return will not entice me. I’ve been through multiple recessions (this will be another one) and I know now is not the time to be buying illiquid assets like mobile home parks in lower income areas.
You should wait 6-9 months to see how this plays out. Prices will be lower. It’s my money I’m investing, im taking all the risk.
Have you invested in real estate through a recession? We are about to have 15-20 percent unemployment. Are your deals underwritten to handle that?
Keep in mind, I can buy Exxon mobile stock right now for a 10 percent yield. The underlying assets of Exxon are probably worth
More than the company. Also they’ve raised their dividend 37 straight years and its an entirely liquid (but volatile) investment.
If I’m a potential investor you telling me why you’re waiting is going to do a lot more than a larger return.