@Sean Wilkinson
You’re missing some key points. I’ll just address your first strategy. If you’re giving a preferred return to the seller for placing some of his sales proceeds in the deal, then that cash is coming from the cash flow due the equity investors, so the equity investors will be getting a smaller return and won’t invest. Further, why would the seller of the property invest on terms worst then the equity investors? I’m afraid your lack of experience and knowledge shows; your highly theoretical “find motivated sellers” etc, just isn’t the real world. Most sellers who are motivated are motivated because they have properties that they are having difficulty with. What makes you think you’d have a solution to the problem?
Further, your assumption that sponsors receive 30% equity for putting the deal together is very unlikely, although with some very experienced sponsors and some very naive investors it may have happened. I can tell you that we receive a 4.5% acquisition fee, we receive 8% of the cash flow as an asset management fee, and we receive 20% of the capital gains after the investors receive a preferred return. We also invest in10-15% ownership in the deal at the same terms as the investors. I do know some sponsors that do receive 10% equity as a sponsor for no cash investment, but they don’t receive the acquisition fee (which for us is paid by the seller as I hold a brokers license in five states), or an asset management fee.
Raising capital requires compliance with Federal, state securities laws, or both. Attorneys fees run a minimum of $10,000, and usually more for a Reg D exempt offering. It’s near impossible to raise capital without a professional web platform giving potential investors access to deal information, secure money transfer, financial status, and the ability to interact with other investors. A major criteria knowledgeable passive investors look for is how much hard cash the sponsor is putting into the deal. Since there are probably 5,000 real estate deals floating around at any one time seeking investors, and all the projections look rosy, investors have developed some eliminators to narrow the selection. Once an investor decided on type of property, location, minimum return, etc. the eliminators are likely to be sponsor investment, sponsor financial alignment with investor results, upfront dilution, equity dilution, and most importantly, sponsors track record. Your thought that investors are going to regard someone else’s investment as your “equity” is just plain lack of knowledge and experience on your part.
Here’s the bottom line; if there is some new wrinkle or strategy involved in real estate syndication, myself or others like me putting together real estate syndications for the last 20 years would have likely thought of it.