Posted over 4 years ago

5 Steps to Raise over $40,000,000 for Apartment Syndications

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Wondering how to raise investment capital for real estate from high-net individuals? Well, that question assumes that 1) you have high net-worth individuals in your network and 2) you know how to syndicate large multifamily deals. If you are like most entrepreneurs, neither of those assumptions are true. So, the real questions are, how do I create a network of high net-worth individuals, and how do I learn how to syndicate large multifamily deals?

Dave, who has closed on over 2,800 units since 2010, has raised well over $40 million for apartment syndication deals. At one point, however, he was like you. He didn’t have the connections, nor did he know how to invest in apartments. So, how did he get to where he is today and how can you replicate his success?

In our recent conversation, he condensed his journey into a five-step process to raising millions in private investment money.

Step #1 – Build a Reputation

Before even entertaining the idea of raising money for deals, Dave was already investing in multifamily utilizing his own capital. He was also running a sales and marketing company. Due to these successes, he was known by others in his local market to be a savvy entrepreneur who could effectively manage a business. “Having a good reputation in your local market is a great start,” Dave said. “We’re well-known in the community for the business we’ve done there.”

A reputation of previous business success, even if it’s not in apartment investing, is a requirement prior to raising private investment money. No one will entrust you with their hard-earned money without having the confidence that you can navigate the syndication niche.

Step #2 – Tell Your Story

After building a business reputation, you want to locate the high-net-worth individuals in your current network and tell them your story. And if you are thinking to yourself, “Joe, I don’t have any high net worth individuals in my network,” then you need to continue working on that reputation. When you are performing at a high level, in either real estate or business, you will cross paths with these potential private money investors. For example, prior to becoming a syndicator, I was a VP at a New York City advertising firm. When I decided to raise private investment money, people within that industry with whom I had created relationships were some of my first investors, and they still invest to this day. They had seen my success in business (the advertising industry) and in real estate (I had purchased multiple SFRs and taught classes on how to invest in SFRs).

Similarly, Dave said, “what really helped [me] was I was able to show them what I was doing. I started in this business investing in multifamily on my own for myself. I had a tax problem. I needed some tax shelter. We got creative on that side, so I was able to approach some of the people that I knew that had some investable income, and I just told them my story.”

So, after building your reputation, use it as a selling point to the high-net-worth individuals you met along the way.

Step #3 – Get Investor Commitments

Once you’ve built your reputation and begin telling your story to high-net worth-individuals, get them to commit to investing in a deal. For example, Dave’s first investors came from the members of a local bank’s board in which he was invited to join.

He said, “I was invited to sit on the board of a local startup bank… I was listening to conversation that went something like this – These guys were talking back and forth, and I knew most of these guys around the table, about a dozen guys. They were talking about investing in this bank and wanting to know if it was a good idea, a wise investment. I heard conversations like, ‘Well, you may not see a return for 5-7 years, but it’s better than putting our money in a CD.’ I was just blown away. I was amazed at the conversation. I got to looking at what I was doing in the multifamily space and got thinking, ‘Man, how can I add value to these guys?’ It was about the time I had bought a couple hundred units on my own. I was sort of coming to the point where I was running out of cash. I had to slow down. Then I talked to another friend of mine who was on the board as well. I ran the idea by him about syndicating and teaming up with these guys. He thought it was a great idea. For the next deal, they come along.”

Due to his business reputation, he was invited onto the board. Due to his previous real estate experience and successes, he had a compelling story to tell. With this combination, he was able to raise private investment money for his first syndication deal. “I needed $850K to get the deal done,” Dave said, “and I went to see some of these individuals. Some guys that I knew were able. It was about getting around the right people and about having a good relationship in the community, and being able to go out there and talk to people that knew and trusted me.”

Step #4 – Increase Investor Network Through Referrals

Once you gain your first investors and complete a deal or two, as long as those deals were a success, your current investors will refer you to their other high-net-worth friends. From there, it’s a snowball effect.

Dave said, “If I would pinpoint and go back to each one of those [investors], a lot of the guys were from referrals. People that invested with me and then said ‘Hey, I’ve got a friend,’ and they’d give me a third-party endorsement, and we ended up doing a deal together. One thing led to the next, and the next thing you know they’re a really faithful investor.”

Step #5 – Retain Current and Referral Investors

Finally, once you receive a new investor, either your first investors or through referrals, retain them by continuing to syndicate successful deals. As long as you consistently provide your investors with a solid return, you will not only continue to receive more referrals, but those current and referral investors will come back deal after deal. For an example, Dave said, “We [recently] closed a 373-unit building. We’ve raised $3.5 million. About 85% of those investors had invested with me on other deals. So, they were current investors and just coming back for another round.”

Conclusion

For those aspiring entrepreneurs who want to become multifamily syndicators, starting from scratch, the 5-step process is to:

1.Build a business or real estate reputation in your target market
2.Convey your reputation to high net worth individuals in your network through storytelling
3.Get investors to commit to your next deal
4.Increase your number of private money investors through referrals
5.Retain your investors by consistently providing a solid return on investment