Having your investors committed before you even put a property under contract is critical when syndicating apartment building deals. Without upfront commitments from investors, you won’t be able to submit offers confidently and it will be difficult to get the money in time to close.
This “catch-22” keeps most real estate investors on the sidelines. This frustrates me because it doesn’t have to be this way.
Last week we talked about Why You Should Raise Money to Buy Apartment Buildings. This week I’ll share with you a secret that will let you raise money from private individuals long before you have a deal under contract.
This means you can get started today, right now.
The secret is so secret that I’ve never heard it revealed anywhere else.
The secret will stun you with its simplicity.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
The Secret Revealed
The secret to getting financial commitments from your investors long before you have your first deal under contract is to … make a up a deal.
You “make up a deal” by creating a “Sample Deal Package”. This document contains everything about your fictitious deal including photos, information about the building and area, actual financials, your business plan, projected financials and returns. You will use this Sample Deal Package to speak with potential investors. You will even use it to build credibility with other professionals you’re trying to recruit to your team (like commercial real estate brokers, lenders, insurance agents, attorneys etc).
The difference between a Sample Deal Package and a real one is that all of the information about the deal is accurate (photos, location, financials, etc), except that you don’t have it under contract. The other difference is that your fictitious purchase price may be lower than the asking price so that you achieve the desired returns for the investors. In other words, you approach your potential investors with a deal package that looks like the real thing.
But how do you create such a Sample Deal Package?
Find and re-purpose the marketing package for a listed property and turn that into your Sample Deal Package. It will contain an executive summary about the building, investment terms and potential returns; information about the building and area; photos; actual financials; projected financials; potential estimated returns for the investors; and information about yourself and your team.
Where do you get all of this information? One good (free) source is www.loopnet.com, which lets you search for the kind of deals you want to do. Download a good marketing package and get to work.
Having this Sample Deal Package does several things for you:
- It allows you to better visualize your deal. This is critical as you expand your own comfort zone with doing your first commercial real estate deal, or doing bigger ones than before. Seeing the photos, visiting the property, writing and talking about it make this deal real for you. The more real it seems to you, the more comfortable you become and the more confidently you can talk about it.
- It empowers you to get started now. You can now schedule meetings with potential investors and say, “I don’t have a deal right now, but when I do, it’ll look substantially like this” and then you show them the Sample Deal Package. It gives you something to talk about today.
- It will allow you to get financial commitments from your investors long before you actually have a deal under contract. By the time you get a building under contract, you’ve already primed your investors and received financial commitments based on a deal substantially similar to that in the Sample Deal Package. When you actually have a property under contract, you will send your investors the real Deal Package, re-confirm their commitment and close on time.
Creating a Sample Deal Package allows you to get started NOW with apartment building investing. It allows you to better visualize your deal, gives you the confidence to make offers, and secures commitments from your investors long before you put your first property under contract so you can close on time.
In later weeks we’ll talk more about what how to find potential investors, how to conduct your first meeting, what investors look for, and how to structure the investment.
In the meantime, I’d love to hear your thoughts about how you think this “Sample Deal Package” approach would work for you.