"Am I experienced enough to raise outside capital?"

Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes

"Am I Experienced Enough to Raise Outside Capital?"

This question crossed my mind recently after reading a post and some comments discussing whether an investor is experienced enough to raise capital from outside sources. It got me thinking:

In your opinion, what are the minimum requirements someone should meet before raising money from investors (beyond family and close friends)?

What skills, experience, or track record do you think are essential to successfully and responsibly raise money from others?

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Scott TrenchPro Member

Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

It's really hard to gauge this question.

I think that the attempt to scale super quickly is more dangerous than whatever the first raise is.

A young investor with just 1-2 properties, 3 years into their journey could potentially be a great partner for friends and family. If this person raises $400K from friends and family to purchase a $1M 6-unit apartment complex, they might be a great potential partner. Especially if they put in $35K, or what amounts to most of the then total of their liquid wealth.

On the other hand, we saw experienced investors with really strong reputations scale from a few million to a hundred million, or, in some cases, literally billions of dollars, in AUM at the worst possible time between 2019 and 2021.

I'd rather invest with the local 26 year old who lives in their second house-hack, drives their 10 year old car, and is raising their first small apartment syndication that they will self-manage, putting their own money into the deal, than some 45-year old guru who is great at social media, with their ability to charm on TikTok, but really, their "secret" as an investor is their ability to (on a part-time, "passive" - for them, and remote basis) transform $300M in real estate into $215M between 2021 and 2025.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Gregory Schwartz:

"Am I Experienced Enough to Raise Outside Capital?"

This question crossed my mind recently after reading a post and some comments discussing whether an investor is experienced enough to raise capital from outside sources. It got me thinking:

In your opinion, what are the minimum requirements someone should meet before raising money from investors (beyond family and close friends)?

What skills, experience, or track record do you think are essential to successfully and responsibly raise money from others?

Depends on how much you are raising, but have you been able to consistently earn money in waht it is you are trying to do? How much $ are you putting into the deal? There is not a black and white answer.
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
@Chris Seveney Assuming a newer investor. What is a realistic amount, $25k-$100k? Let's say someone is looking to scale a portfolio of single-family or small MF, long-term rental. Value add, so BRRRR type of model.
What kind of track record do you look for?
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Gregory Schwartz:

@Chris Seveney Assuming a newer investor. What is a realistic amount, $25k-$100k? Let's say someone is looking to scale a portfolio of single-family or small MF, long-term rental. Value add, so BRRRR type of model.
What kind of track record do you look for?

Go with a hard money lender in that scenario - but also recognize you need to have some $. You cannot start a business with no experience and no money unfortunately.
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y

This doesn't answer the questions. But thanks for the advice, hard money is a good option but Im specifically asking about raising money.
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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
1y
Personally I would not feel comfortable with raising money unless I've done 5+ deals within that asset type. I think there's many variables that will sway things like - previous deal sizes, price points, strategy(turn key or fixer upper) and who the person is raising the money. I am a firm believer that if someone raises money they should have some sort of experience and also financially have a strong foundation themselves. There is so many posts about complete newbies wanting to partner or use someone else's money and I think that is far too risky.
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Robert EllisBusiness Member
Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
1y
Quote from @Gregory Schwartz:

@Chris Seveney Assuming a newer investor. What is a realistic amount, $25k-$100k? Let's say someone is looking to scale a portfolio of single-family or small MF, long-term rental. Value add, so BRRRR type of model.
What kind of track record do you look for?

if he's getting into capital raising to raise 25k or 100k he needs to stay with his corporate job. raise that number by 10x and do something that's life changing. challenge yourself.
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
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@Robert Ellis Ok I'll take the bait. Let's assume this person also drinks the Grant Cardone Kool-Aid and wants to 10x. What level of experience does an investor need in order to raise $250k or $1M?
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
Quote from @Caleb Brown:

Personally I would not feel comfortable with raising money unless I've done 5+ deals within that asset type. I think there's many variables that will sway things like - previous deal sizes, price points, strategy(turn key or fixer upper) and who the person is raising the money. I am a firm believer that if someone raises money they should have some sort of experience and also financially have a strong foundation themselves. There is so many posts about complete newbies wanting to partner or use someone else's money and I think that is far too risky.

Thanks for this. It paints the picture of a successful investor who's only constraint is access to capital.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Gregory Schwartz:

Quote from @Caleb Brown:

Personally I would not feel comfortable with raising money unless I've done 5+ deals within that asset type. I think there's many variables that will sway things like - previous deal sizes, price points, strategy(turn key or fixer upper) and who the person is raising the money. I am a firm believer that if someone raises money they should have some sort of experience and also financially have a strong foundation themselves. There is so many posts about complete newbies wanting to partner or use someone else's money and I think that is far too risky.

Thanks for this. It paints the picture of a successful investor who's only constraint is access to capital.

I can only comment on how I have done it. First when I wanted to create a fund to buy court house steps.. I did the first 3 with my funds and showed cradle to grave.. In my land Timber days we just used bank LOC's but success in logging and creating substantial income allowed us to get those lines. Also keep in mind the 25k investors is the toughest one.. nervous take a ton of your time etc.. Investors that will go say 250 to 1 mil or more once you prove your experience are far easier to deal with and the only ones I personally interact with.
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
1y
It's really hard to gauge this question.

I think that the attempt to scale super quickly is more dangerous than whatever the first raise is.

A young investor with just 1-2 properties, 3 years into their journey could potentially be a great partner for friends and family. If this person raises $400K from friends and family to purchase a $1M 6-unit apartment complex, they might be a great potential partner. Especially if they put in $35K, or what amounts to most of the then total of their liquid wealth.

On the other hand, we saw experienced investors with really strong reputations scale from a few million to a hundred million, or, in some cases, literally billions of dollars, in AUM at the worst possible time between 2019 and 2021.

I'd rather invest with the local 26 year old who lives in their second house-hack, drives their 10 year old car, and is raising their first small apartment syndication that they will self-manage, putting their own money into the deal, than some 45-year old guru who is great at social media, with their ability to charm on TikTok, but really, their "secret" as an investor is their ability to (on a part-time, "passive" - for them, and remote basis) transform $300M in real estate into $215M between 2021 and 2025.

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Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
1y
@Gregory Schwartz
The answer starts with an honest self examination and assessment.
I think the answer is more qualitative than quantitative - ie it’s not about how many deals or how big those deals are.
It’s more about:
Have you invested in real estate for your own account and have you been successful at it?
What skills do you bring that are superior to those you want to raise money from?
Are you an expert?
I’ve raised over $13M as a MF syndicator and it’s an awesome responsibility. Having people write Spark Investment checks for $25K, $50K, $100K and more. It’s great to be trusted with others hard earned capital but I only accept that responsibility because I KNOW I can do the job - that I have done the job over the years.
Do you know what you are doing based on actual practical hands on experience?
Be honest about your history and abilities.
I’d start with a smaller deal - buy a 6 to 12 unit say - raise money from your social and professional sphere - people who know you - who you have a beer with etc. AND put in as much of your own money as the investors do.
Take that deal for a trail run. Learn. Gain experience and then scale.
Hope this helps.
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
Quote from @Jay Hinrichs:
I can only comment on how I have done it. First when I wanted to create a fund to buy court house steps.. I did the first 3 with my funds and showed cradle to grave.. In my land Timber days we just used bank LOC's but success in logging and creating substantial income allowed us to get those lines. Also keep in mind the 25k investors is the toughest one.. nervous take a ton of your time etc.. Investors that will go say 250 to 1 mil or more once you prove your experience are far easier to deal with and the only ones I personally interact with.
I really appreciate the insight here. Proof of concept seems to be a key part of your strategy starting off.
[email protected]443-812-0357
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
Quote from @Scott Trench:

It's really hard to gauge this question.

I think that the attempt to scale super quickly is more dangerous than whatever the first raise is.

A young investor with just 1-2 properties, 3 years into their journey could potentially be a great partner for friends and family. If this person raises $400K from friends and family to purchase a $1M 6-unit apartment complex, they might be a great potential partner. Especially if they put in $35K, or what amounts to most of the then total of their liquid wealth.

On the other hand, we saw experienced investors with really strong reputations scale from a few million to a hundred million, or, in some cases, literally billions of dollars, in AUM at the worst possible time between 2019 and 2021.

I'd rather invest with the local 26 year old who lives in their second house-hack, drives their 10 year old car, and is raising their first small apartment syndication that they will self-manage, putting their own money into the deal, than some 45-year old guru who's secret sauce turned out to be their ability to charm on TikTok, but really, their approach to deals ended up being the "secret" to transforming $300M in real estate into $215M between 2021 and 2025.

I like this, bet on the jockey more than the horse kind of situation. Experience is important but not as important as the character of the investor?
[email protected]443-812-0357
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
Quote from @Arn Cenedella:

@Gregory Schwartz
Thanks, that’s helpful. In your opinion, would someone be considered an expert after completing 2-3 'smaller' multifamily deals, or is it more like 5-10 deals? I understand it can be harder to gain experience with larger multifamily properties compared to single-family homes or duplexes, where someone might complete 5 deals in 1-2 years. With multifamily, it might take 5-10 years to reach that same number of deals. What’s your perspective?

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Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
1y
Quote from @Gregory Schwartz:

Quote from @Arn Cenedella:

@Gregory Schwartz
Thanks, that’s helpful. In your opinion, would someone be considered an expert after completing 2-3 'smaller' multifamily deals, or is it more like 5-10 deals? I understand it can be harder to gain experience with larger multifamily properties compared to single-family homes or duplexes, where someone might complete 5 deals in 1-2 years. With multifamily, it might take 5-10 years to reach that same number of deals. What’s your perspective?

I’d say if you did 2 or 3 smaller MF deals on your own and they went well, I’d say you are qualified to raise capital to buy properties similar to what you have already bought yourself.

2 or 3 smaller MF deals does NOT qualify you to raise capital and buy 150 unit deal.

I believe in step by step progress slowly and consistently working up the ladder towards bigger deals. Build a solid foundation before taking a step up - each and every step of the way.

There’s a way to scale recklessly and there is a way to scale safely.

When OPM is involved safe is way better than reckless.

Despite a life long career in RE, I scaled as follows

Bought a few duplexes for my own account
Bought a fourplex for my own account
Bought 12 units as a JV with some friends
Syndicated 43 units
Syndicated 30 units
Bought another 12 units as a JV
Syndicated 281 units

This was over a 3 or 4 year period.

and so forth - now I am GP in close to 1000 units with $125M AUM.

Even with all that, my sweet spot is 30 to 50 unit properties - they work best for my partners and I and more importantly our investors.
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Gregory SchwartzBusiness Member
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Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
1y
Thanks so much. That feels like a great resume and a good path someone could follow who wants to get into syndication
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
1y
Quote from @Gregory Schwartz:

Quote from @Scott Trench:

It's really hard to gauge this question.

I think that the attempt to scale super quickly is more dangerous than whatever the first raise is.

A young investor with just 1-2 properties, 3 years into their journey could potentially be a great partner for friends and family. If this person raises $400K from friends and family to purchase a $1M 6-unit apartment complex, they might be a great potential partner. Especially if they put in $35K, or what amounts to most of the then total of their liquid wealth.

On the other hand, we saw experienced investors with really strong reputations scale from a few million to a hundred million, or, in some cases, literally billions of dollars, in AUM at the worst possible time between 2019 and 2021.

I'd rather invest with the local 26 year old who lives in their second house-hack, drives their 10 year old car, and is raising their first small apartment syndication that they will self-manage, putting their own money into the deal, than some 45-year old guru who's secret sauce turned out to be their ability to charm on TikTok, but really, their approach to deals ended up being the "secret" to transforming $300M in real estate into $215M between 2021 and 2025.

I like this, bet on the jockey more than the horse kind of situation. Experience is important but not as important as the character of the investor?

I guess yes, the jockey is the starting point for me.

"Character" is also contextual. There are a lot of high character folks who get sucked into garbage Co-GP style guru programs. They have the best intentions in the world, but they are seduced by the cult of these mentorship programs. There are also a lot of high character folks who are 26 and seem to do everything right, but never seem to accumulate cash. The person I want to invest with is able to accumulate cash, in their personal life, on a regular basis, and is not, over the course of many years, blocked by one barrier or another from this accumulation. I don't really need to know much else about someone - if they can't pass this test, why should I believe that they will be able to run a business that will generate cash?

I also like the sponsor, generally speaking, who is going all in with at least a third, and preferably half, of their net worth on the deal or fund. (And no, the "acquisition fee" or carried interest at the end of the investment are ******** answers to "most of my net worth is in the deal").

When the investor, whether it's a 27 year old putting their first $50K or $100K into something, or a 45 year old worth $15M putting $9M into their business idea, goes all-in, that's when my ears perk up.

I guess that's my answer - it's less about "Experience" and more about:

1) "Are you a generally responsible person, capable of building wealth and worth taking a shot on?" (With invested capital, this matters, plenty of people are worth "taking a shot on" in other capacities, just not with respect to managing my money).

2) "Is this investment where I'm giving you money the top priority in your professional life?"

3) Do I agree with the thesis underlying whatever I'm being asked to invest in?

Many "experienced" investors fail the second test. When you have 25 different funds or deals going on, my deal simply can't be the top priority in your work life. I'd personally never take capital that I am paid to manage without committing my full-time effort to the situation and putting a majority (I reserve the right in the future to make this 1/3rd of my position) of my wealth into the situation.

The people who share my mentality are few and far between. And that's ok - I am totally fine to weed through hundreds or thousands of pitches to find the small handful of like minds out there, and I am perfectly capable of investing my own capital in the meantime.

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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
1y
On a related note: I am looking for someone who meets the following:
- Is an up and coming investor without a large current portfolio.
- Has accumulated tens or hundreds of thousands of dollars
- Has a thesis to purchase extremely distressed office buildings in urban locations, get them re-occupied, self-manage and work in and on the buildings to get them re-rented, preferably Denver. Will make this pursuit their full-time job for the next several years, and commit whatever they have, aside from a suitable personal emergency fund, to the thesis.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Gregory Schwartz:

Quote from @Jay Hinrichs:
I can only comment on how I have done it. First when I wanted to create a fund to buy court house steps.. I did the first 3 with my funds and showed cradle to grave.. In my land Timber days we just used bank LOC's but success in logging and creating substantial income allowed us to get those lines. Also keep in mind the 25k investors is the toughest one.. nervous take a ton of your time etc.. Investors that will go say 250 to 1 mil or more once you prove your experience are far easier to deal with and the only ones I personally interact with.
I really appreciate the insight here. Proof of concept seems to be a key part of your strategy starting off.

Keep in mind I dont do rental properties we do land projects new builds and capital partner with other developers who need capital.. Court house steps was foreclosure purchases and sub to purchases to flip.. we hold now long term rentals.. For me personally long term rentals add another layer of complexity and staff needs. And the other reason I wont accept small dollars or investors is you lose any personal interaction when you have 100s of investors and I like the personal aspect of this. I think you see on BP the biggest heartache investors have with their GP is lack of communications. That in itself is a skill and a needed over head component to keep from having investors get very antsy and then take to SM because they are not getting their e mails returned that day or next ..
Flip side is we are transactional so its all write ON's not write offs does not appeal to all investors but those who want a blended portfolio its very appealing.
If your starting with one 6 plex and plan to keep long term. The money needs are not great and the cost of bringing in investors etc may exceed what is justified for such a small deal.
An LLC with close associates may do the trick as you start out.. Just sayin.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Scott Trench:

On a related note: I am looking for someone who meets the following:
- Is an up and coming investor without a large current portfolio.
- Has accumulated tens or hundreds of thousands of dollars
- Has a thesis to purchase extremely distressed office buildings in urban locations, get them re-occupied, self-manage and work in and on the buildings to get them re-rented, preferably Denver. Will make this pursuit their full-time job for the next several years, and commit whatever they have, aside from a suitable personal emergency fund, to the thesis.

Hey no advertising on the open forum your going to get reported LOL.. This could be an awesome play.. I had an investor that did this with small strip malls in PHX when PHX crashed in 08 .. came out very well on the other end. !!!
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
1y
@Jay Hinrichs LOL - I live in fear of the banhammer like everyone else.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Scott Trench:

@Jay Hinrichs LOL - I live in fear of the banhammer like everyone else.

well as they say Rank has its privileges.. someone takes that bizz model and runs with it in the right market they will do quite well.. WE are seeing this in the Portland market.

Montgomery Park the largest office complex in the state that sold about 7 years ago for 250 mil just got bought ( after no one bid it at foreclosure) for 25 mil by Menashe family. its over 1 million sq ft.. dont think you can lose on something like that.

reminds me of the buys in 2010 in some markets were sfr's were selling for 1/4 of replacement costs.. Like SWFLA new builds at the time I was buying for 25 to 35k at courhouse and Atlanta until the hedge funds came in and kicked us little guys to the curb. !!
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Amir Khan
Investor · Coppell, TX · Member since 2018 · 311 posts · 166 votes
1y
In my opinion, here are the minimum requirements with which anyone with little bit of experience can raise money from strangers:

1. Focus on one real estate strategy only, master it so you can explain the details well. Have at least 1 deal with proof of concept (preferably with your own funds). Document the details of this deal as your sample deal.

2. Based on your real estate investment strategy, figure out who could be the best private money lender (PML) match. In other words, create your PML avatar.

3. Find places where your PML avatar hangs out. Ideally, you are looking for places where everyone is expected to network like local reia meetings.

4. Create your pitch deck keeping focus on your real estate strategy and your PML avatar.

5. Create your systems that allow you to seamlessly pitch, onboard and service your PMLs. These include website/investor portal, CRM, in-person meeting space or online (Zoom), online scheduler like calendly.

The secret is to create a "system" so you can keep the flow of PMLs coming through your pipeline.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
@Gregory Schwartz it's rather simple nowadays:
He who can raise the $, can raise the $......
It seems last few years all the established norms went right out the window.
I mean come one, there was those out there pitching LP-$ for buying Radio Shack and doing some weird come-back thing with it, and people threw $ at em for it...... It's really hard for me to think there is any bar left out there after that.
Now if looking to do it RIGHT.....
I'd say the skills that matter most is whatever skills are required to make it happen. It's really just that simple.
And than, to be able to convey that fact.
If you can make me believe your vision makes $, and that your the guy to pull it off, I'm handing you $ in proportion to what my reward can be for it, and how certain I believe you can deliver on it.
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Joe S.Pro Member
Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
1y
Quote from @James Hamling:

@Gregory Schwartz it's rather simple nowadays:
He who can raise the $, can raise the $......
It seems last few years all the established norms went right out the window.
I mean come one, there was those out there pitching LP-$ for buying Radio Shack and doing some weird come-back thing with it, and people threw $ at em for it...... It's really hard for me to think there is any bar left out there after that.
Now if looking to do it RIGHT.....
I'd say the skills that matter most is whatever skills are required to make it happen. It's really just that simple.
And than, to be able to convey that fact.
If you can make me believe your vision makes $, and that your the guy to pull it off, I'm handing you $ in proportion to what my reward can be for it, and how certain I believe you can deliver on it.

Well put James.
Those that can, can. Really that boils down to a lot of things in life. Those that can paint the most convincing presentation has the chance of winning the prize. Unfortunately, Con artist figured that out long time ago.
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