Rental Property Investor · Jacksonville, FL · Member since 2019 · 16 posts · 16 votes
Hey guys hope all of you are well and are staying safe during these times.
I had a question about partnering with investors in large Multifamily apartment investment deals. I wanted to know what is the best way to have a guarantee that investors who commit to investing a certain amount of money follow through with their commitment to come up with the funds once you put a Multifamily deal under contract? I’ve seen a lot of investor examples where an investor finds and puts a deal under contract and then starts to search for investors. I know you should already have some some relationships with investors lined up beforehand but what is your guarantee or security that these investors will come up with the money for the downpayment or the guarantee they will come up with the money on time before closing. If it’s just a commitment by word of mouth for example there is no guarantee and an investor could change their mind and then you’re not able to come up with the money for the deal. The idea that came to my mind when speaking with a real estate lawyer would be to create an escrow account where investors can place their money in even before a deal is put under contract. That way once you do find a deal you’re guaranteed to have the money to be able to close on the deal. That sounds like the ideal way to do it but not sure If it’s the best one. Any thoughts would be appreciated.
@Alejandro Antonio Taylor JR unfortunately, there is never a guarantee that an investor will actually fund their commitment. Sometimes the investor even completes their subscription booklet, "flakes-out" and never wires money.
Make sure you connect with a securities attorney regarding accepting money as there are rules you need to follow.
The best approach, in my opinion, is to always have commitments in excess of your targeted capital raise.
If you are raising $2.5 million, try to get commitments at 2x the raise ($5 million) knowing that some people will ghost you when you are at your critical time in the deal to get the transaction closed.
@Alejandro Antonio Taylor JR unfortunately, there is never a guarantee that an investor will actually fund their commitment. Sometimes the investor even completes their subscription booklet, "flakes-out" and never wires money.
Make sure you connect with a securities attorney regarding accepting money as there are rules you need to follow.
The best approach, in my opinion, is to always have commitments in excess of your targeted capital raise.
If you are raising $2.5 million, try to get commitments at 2x the raise ($5 million) knowing that some people will ghost you when you are at your critical time in the deal to get the transaction closed.
I get around this issue by having potential new investors sign a "letter of intent to invest" with the amount they're willing to commit. This serves a dual purpose because I also sometimes use these to prove to brokers I have enough capital to close. But like Brian said there is no guarantee.
@Brian Adams gave you an excellent advice on getting a lot more commitments than you need to ensure you have enough capital. Such raises have to be discussed with securities attorney ahead of time to ensure you follow rules and regulations.
Also, if you haven't yet, start establishing and building the relationships with the investors early on, way before you want to bring them on board. This will give enough time to both sides to get to know each other.
Here's an article to help you find your investors:
@Alejandro Antonio Taylor JR remember to consistently keep your investors excited and updated about the market they will eventually be investing in. Keep them informed by sharing articles on the market, and providing some valuable content that will make them more comfortable and enthused. It never hurts to do investor surveys and personal check-ins as well. Like the others say, try to double that raise.
@Alejandro Antonio Taylor JR, as mentioned there is no guarantee. I tend to have an optimistic outlook on people that they will do what they say, but sometimes life comes up and no one expected it. Until it is in your account, it is not guarateed.
I also look at it the other way. You want guarantees, but are you offering them a guarantee you will find a great deal to invest in? They are tying up their capital and likely turning down other deals if they guarantee money to you.
The goal is to build and build and build your network. Most syndicators take 90-120 days to raise all the money for a deal. But as you build your network that drops significantly, sometimes to hours, from a deal going out. It is a risk you have to take a syndicator. Lock up a deal, then raise.
Even experienced operators oversubscribe their deals to account for flakiness between commitment and funding. I would say 2x your needs is aggressive. 20-25% may be more realistic as you are newer and building a track record. Your vetting process helps this a lot. Do they really have the means to invest? What is their timeline to place capital? How much are they trying to place, and across how many deals/sponsors? These types of questions will give you a good gauge on how many other deals they are considering and whether they have $50k burning a hole in their pocket today, or $500k going out over the next year.
1. Educate Early and often 2. Give a Sound presentation
3. Provide documents right away 4. Contact each investor (consistently) 5. Get it in writing
6. Fund Early 7. Communicate with IRA investors and custodians
Thank you guys for all of the great info. Very beneficial and I really appreciate. Wishing all of you nothing but the best and hope all of you are staying safe and positive during these times.