Raising Capital for Real Estate Investments

Knowing how to raise capital is an important part of the real estate investment process. Relationships are key to growing your net worth, and when you need to raise money, it is absolutely crucial.

Since I jumped head-first into this business, I have spent a lot of time thinking about these relationships and learning how to effectively raise capital for real estate.

How do you find high-net-worth individuals? How can you do your part to ensure high-profile investors will return your messages? What needs to be done to raise private money with a 506(b) and 506(c) offering? Which routes should you take to raise more than $1 million for your first apartment syndication?

Finding the answers to these questions, among others, can go a long way toward obtaining the money you need to reach your financial goals.

Below, you will find more than 20 articles detailing various ways you can figure out how to raise capital. Take some time to dive into these posts, and I promise you will be well on your way to constructing a plan that makes sense for you.

When you have finished your research, I encourage you to check out other sections of the blog, which can help you understand what it takes to build your own team, gain financial independence, gain insight from celebrity investors, and plenty more.

I also encourage you to check out my podcast, Best Ever Show, the longest-running daily podcast about real estate investing, as well as both volumes of my book and my own mobile app, which is available on Apple and Android devices.

And if you feel ready to start investing, do not hesitate to reach out. Click here to learn how you can schedule a planning session and start investing with me today.

7 Ways to Raise Capital When You’re Without Funds

7 Ways to Raise Capital When You’re Without Funds

Not all investors have money to invest. Yet, they offer other skill sets or values that make them an important part of the team. That being the case, finding the deal and closing on the deal can be miles apart if you can’t raise the money. Below are multiple avenues to raise capital for that perfect deal without any funds to get it to the finish line.

 

1. Mortgage or Investment Property Loan

With a good banking relationship, a good deal will always be attractive to a bank for a mortgage. The property type and deal will determine which mortgage is appropriate, e.g., FHA or conventional, or in the case of a rehab project, a 203(k) loan. Bankers usually have a multitude of lending vehicles in their arsenal to help you get that deal completed. Bear in mind that banks will want to see that you have some skin in the game, so be prepared to put down a larger down payment, have sufficient cash reserves, and have good credit scores to help ease you through the underwriting process with the bank.

 

2 . Private Money Lenders

Family, friends, colleagues, business people, or anyone flush with cash are also good options for anyone looking to stay away from the banks. Typically, such loans are documented through a promissory note and a personal guaranty from the borrower. The private lender will generally ask for interest payments or some sort of return on their investment. The interest on these loans typically is higher than that offered from a bank, and the terms of the loans are often for shorter periods of time — typically a few years or less. Such loans are a good solution to the bureaucratic trappings of underwriters.

A word of caution: Have your lawyer review any documents provided to you by the lender prior to signing the promissory note and attendant documents.

 

3. Hard Money Lenders

Hard money lenders are well known for financing fix-and-flips. These loans are for a shorter period of time, typically have higher rates of interest, and most often require a percentage of the profits from the sale of the property. I like to consider these loans as short-term solutions to financing problems. Due to the high interest and loss of profit to the lender on the sale of the property, these can be less helpful for projects with tight margins.

 

4. Crowdfunding

Crowdfunding sourcing is a relatively new money-raising avenue. Yet it works, and at times, it works well. Simply explained, the project is put on a crowdfunding site such as Fund that Flip or GROUNDFLOOR, and those that contribute own a portion of the project and attendant profits. Please perform your due diligence on any crowdfunding platform to raise capital.

 

5. P2P Lending

Similar to crowdfunding, this method to raise capital requires you to post your project on a website, where you will be matched with an investor. Such peer-to-peer investing has seen good success on platforms like PeerStreet. Read the fine print for terms and make sure to perform your due diligence into the reviews, terms, and security of the platform.

 

6. Home Equity

Home equity is a great way to turn your personal residence into a bank. By tapping into the equity of your personal residence you can quickly purchase a property, make necessary fixes, and flip the property. Moreover, the equity in your house can be quickly repaid with a refinance once the property is secured. Speak with your attorney and CPA or accountant about home equity. This method has proven itself a viable option time and again and is readily accessible to most people.

 

7. Partnering

Once you have all the tools to acquire the deal and have it planned out, the right partner can bring the money to the table. That being said, it is vital to vet that person thoroughly. Ask for their references, get to know them, and find out if they have ever done this type of transaction before. More often than not, partnerships grow and succeed faster than those trying to go it alone. Real estate meetups and networking opportunities are great synergistic points to find your next partner.

 

Final Thoughts

Remember, getting to where you want to be in the real estate investing world is a long game. Play it smart, take the long view, and do your homework. If there is a deal to be made, there is always a way to execute that deal. We all bring certain value adds to the table — money is simply one of those value adds. Think outside the box and make the deal happen.

Best of luck to you out there.

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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4 Tips to Raise More Money From Passive Investors

4 Tips to Raise More Money From Passive Investors

Have you ever found yourself asking: How could I raise more money from passive investors for real estate investing? If so, you’re definitely not alone. It’s one of the industry’s most common questions.

To help you out, here are four proven strategies for earning more funds from passive investors. If you can incorporate all four of these techniques into your work, your syndicate should keep thriving.

 

1. Launch a Thought Leadership Platform

Your network, also known as a sphere of influence, is one of your most valuable assets. Grow it, and you’ll almost certainly grow your business. You’ll have more leads and more opportunities, and more people will be eager to invest with you.

A thought leadership platform is the best tool for growing your network. Examples of effective platforms include blogs, podcasts, and video channels. Real-life events can work, too. Interview formats are often ideal for these platforms. You can invite experts to share their knowledge, and you’ll attract many of their fans when you talk with them.

Flourishing thought leadership platforms share two qualities. First, they’re consistent; new content gets released at regular intervals.

They also focus on unique topics. They’re not bland, generic, or overly broad. For a marketable topic, try to incorporate an intriguing aspect of your life. For instance, if you are or ever were a schoolteacher, you might focus on how educators can invest on the side and how they can teach real estate lessons in the classroom.

Remember that a thought leadership platform is a long-term proposition. It will almost certainly take time — maybe a year or longer — to see impressive results. A good place to start, though, is with people you already know.

That group could include friends, family members, coworkers, neighbors, classmates, and the people you see at church or the gym. And those individuals might recommend your platform to people they know. Some of these people may even be willing to invest in your syndication projects.

In addition, make sure you’re posting your content on large and popular distribution channels like Facebook, LinkedIn, YouTube, and Bigger Pockets. Such channels make it easier for web searchers to discover you.

 

2. Ask Positive Questions

The words we use impact the way we think and vice versa. Thus, if we often use negative phrasing, we tend to think negatively. And negative thinking limits our options, sometimes on a subconscious level.

Maybe you’ve asked yourself and others questions like these:

• Why aren’t I more successful?
• Why can’t I ever find good leads?
• Why do my syndication attempts always fail?

Because these queries focus on negative concepts, they reinforce in your mind a certain idea: that you won’t ever succeed.

Therefore, if you’re talking with an expert or just doing your own research, it’s much more productive to pose positive questions. Ask about proactive steps you can take, questions like the following:

• What’s the first thing I should do to raise capital for a particular deal?
• Where can I go in my community to find outstanding leads?
• Who in my sphere of influence could help me attract new investors?

When you put forth such questions, you get solid information that you can use right away.

More than that, these questions put you in the frame of mind for business success. Instead of making you feel defeated, they can empower and energize you. They remind you that you are in charge of your destiny and that you have the resources to improve your situation at any time.

 

3. Make Your Own Opportunities

Once you’re asking good questions, you’re ready to create great opportunities. Never sit back and wait for passive investors and deals to come to you. Go out and find them.

If you’re in need of funds, for example, go to as many conferences, meetup groups, Bigger Pockets forums, and other networking events as you can. Contact leading industry bloggers and other online influencers as well. Over time, your network should grow considerably, and your investment income should do likewise.

In the same way, deals are waiting for you. Of course, you can employ old-school methods such as cold calls and direct mail. And, once again, it pays to be an enthusiastic networker. Reach out and build relationships with as many local property owners as possible. You’ll get inside intelligence that way, and those people just might call you first when they’re ready to sell.

 

4. Find Complementary Partners

A business partner can be extremely helpful. When you join forces with someone, your sphere of influence will immediately double. You can accomplish twice as much in a given week or month. You can motivate one another to ever-greater heights. And, if you choose the right person, your weaknesses will no longer hold you back at all.

That’s because the ideal business partner is someone who’s good at what you’re not so good at. As a result, the two of you can both focus on your strengths, leading to a more formidable operation overall. For example, if you’re a whiz at underwriting but not so hot at marketing, seek someone who’s a genius at the latter.

Naturally, finding such a person requires introspection. You have to honestly and objectively assess your past performance to figure out what you do well and less well. Also, never feel bad about any weaknesses. Everyone has professional weaknesses, and being able to recognize them is, well, a strength.

Finally, all of these methods have something in common. They’re not one-offs. Instead, they’re behaviors for the long haul. They’re techniques that can win over passive investors year after year. In that way, investing in success really is a way of life.

 

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How to Provide Value to a Partnership Without Capital

How to Provide Value to a Partnership Without Capital

How does one bring value to a partnership? I was asked this question last week while speaking with a young man who is interested in real estate investing. His conundrum is that he only has a small amount of capital. Thus, he wanted to know how he could provide value to a partnership that would provide him an equity stake in a deal. Unsurprisingly, this exact question is bandied about among new investors and old. Not all partnerships are on equal footing from day one. Within this blog post, I hope to provide some insight into how to provide value, earn equity, and become a partner when there is no money to invest on your end.

 

Bird-Dogging the Deal

The first and most popular way to obtain an equity stake in a deal is to be the one to find the deal. This means that if you are the hopeful investor with no money, your value is in finding the property, seller, or bringing people together. So how does one find the deal or bird-dog? Answering that is not as simple as it sounds. The short answer is that there is a lot of time spent scouring neighborhoods, property listings, tax records, looking over tax dockets at the courthouse, going to those properties, talking with the owners or agents, and becoming familiar with every aspect of the property. Once a property is identified, what is the deal?

Any investor that will bring money to the table will want to know the numbers. The non-money investor needs to have all the numbers crunched and know that deal backward and forwards. Know the value add and how this deal can be a good buy. Is it simply return on investment or is it an appreciation play? What is the value of the deal? Know the goal of the deal. Simply buying a property is not enough; it is important to know how the deal will bring value to the partnership.

Once you have found the property, be it commercial or residential, you then have to be able to show the money investors how they are going to see returns on their investment. There are numerous apps, programs, and websites that can help you prepare a pro forma on the property. Investors want to see numbers. Numbers control the deal. Know your numbers.

 

Finding the Right Partners Once You Have the Deal

Once you have a deal put together, how do you find the right partner? It is simple to say “networking” and shrug, but that is not a genuine answer. Websites like Best Ever Commerical Real Estate, meet-up groups, and talking with your banker, real estate agent, lawyer, accountant, or insurance agent are good places to start. Those points of contact need to be cultivated to grow relationships. Organic relationships will generate more leads than you can possibly imagine. That said, there are plenty of money investors out there that are looking for deals. If you look enough, they will be everywhere. Investors are always on the lookout for new deals.

Once you have found a potential partner, it is paramount that you and they start the vetting process. You need to learn as much as you can about your partner. That does not mean their blood type and mother’s maiden name, it means that you need to make sure that your soon-to-be partner has the capital, has experience in investing, and is willing to be transparent with you — after all, this is a marriage of sorts.

 

Structuring Your Equity Stake

What does all your effort calculate up to in the deal? Is it 5%, 10%, 15%, 20%, or more of the deal? Is there an equity earn-out? Meaning, does your equity in the deal increase once the money investors have recouped their down payment? The answer to this question is that you need to have this number in your head when you create the deal. You need to understand and realistically value your efforts in putting this deal together. In the context of syndication, this is the role of the general partners. The GPs bird-dog the deals and it is the limited partners (the money investors) that bring the cash to the table. However, not every deal is a syndication. Most deals are simply buying a building, house, or multifamily property, but the concepts are the same.

Spend the time with your potential partner in outlining your partnership agreement. It is time well spent. Speak with a lawyer who handles partnerships, LLCs, and does real estate work. Do not cheap out on getting the right advice — these boxed agreements online will do you more harm than good. Get a tailored partnership agreement. Ask questions and understand the agreement as well as you understand your deal. Learn about the new ideas of the lawyer or your partner. Structuring your deal is as much an art as is putting the deal together. Find the right structure for you.

 

Good luck out there!

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

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How to Achieve Financial Independence Through Passive Investing

How to Achieve Financial Independence Through Passive Investing

Passive investing is one of the best things you can do if you want to achieve financial independence and retire early (FIRE). In a podcast interview with an online blogger and radiologist, we looked at how passive investments helped him become financially stable following a horrible divorce. To protect his anonymity, we will refer to our guest as XRAYVSN.

 

He Lost Everything Before Rebuilding Again as a Passive Investor

Before his divorce, XRAYVSN was financially stable. He lost more than $1 million following the divorce, and his work as a radiologist was not enough to rebuild his nest egg. Commercial real estate and passive investments allowed him to regain the money he lost.

During his 2010 divorce, XRAYVSN spent $300,000 on just his legal counsel fees. By the time everything was done, his net worth was $800,000 in the red. At almost 40 years old, he was completely devastated. His life savings were gone, and he had nothing to look forward to.

Instead of giving up, he began deploying his income in intelligent ways. After a lot of research, he decided to use his earnings to generate passive income. Inspired by the White Coat Investor and Passive Income MD, he began investing in new income streams.

 

How He Achieved His FIRE Goals

Within the FIRE movement, there are different levels of independence. Lean FIRE is when you are able to cover your basic needs. Meanwhile, Fat FIRE is when you can take luxurious vacations and afford almost anything you want. At this point, XRAYVSN is between these two levels of financial independence.

There are a variety of ways that an accredited investor can make money, but XRAYVSN already had a day job. Because he spent so much time working as a physician, he did not want to get started with active investing. Soon, he began researching different real estate investments.

Unlike many FIRE fans, XRAYVSN already had some experience with real estate investing. Before the divorce happened, he had owned several condos. Unfortunately, managing the condos had taken up a significant portion of his time. He knew that he had no interest in becoming a landlord again.

Because of the way the Internal Revenue Service (IRS) taxes earned income, real estate investments were especially appealing. Real estate investments come with extra tax breaks. Each tax break saved XRAYVSN more money, which he could reinvest in real estate properties.

 

Real Estate Investment Trusts

He ultimately decided to use real estate investment trusts (REITs). If you do not want the hassle of being a landlord, a REIT is an excellent alternative. It is essentially a stock that is made up of real estate investments.

Basically, you start by investing your money in a REIT. Then, they invest your money in real estate properties. Each quarter, you are paid distributions based on the REIT’s earnings. While you get paid like a normal real estate investor, you do not have to do any of the work. Because REITs function like stocks, you can easily sell your shares if you need to.

Since REITs are essentially stocks, their value can fluctuate. If the stock market tanks, your investment can disappear along with it. As long as you do not plan on selling your shares in the near future, this is not a major issue.

 

Crowdfunding

RealtyShares and crowdfunding platforms allow normal investors to invest in major real estate properties. Before the Jumpstart Our Business Startups (JOBS) Act, wealthy households were the only people who could invest in certain properties. The JOBS Act made it possible for average investors to invest in these real estate properties.

With many crowdfunding platforms, you can get started with a minimum investment of just $5,000 to $10,000. These investments work by pooling funds from a variety of different investors. If you achieve a net worth of $1 million or more, then you can become an accredited investor. You can also achieve this status if you make $200,000 or more per year.

 

Securing a Syndicator

Accredited investing is designed for sophisticated investors. Once you achieve this status, the Securities and Exchange Commission (SEC) allows you to buy unregistered securities. The SEC assumes investors who reach the accredited level are sophisticated enough to understand the added risk that occurs when you buy unregistered securities.

XRAYVSN quickly attained accredited status, which meant he could get new opportunities through private syndicators. He reached out to these syndicators through their websites and arranged for interviews. Because of how they are designed, these investments typically require a lot more research than standard investments.

Private syndicators spend their time searching for investment ideas. When they find a good one, they send an email blast to their investors. Then, they will generally host a demonstration for investors. Most syndicators require a minimum investment of at least $50,000. These investments are also illiquid, so it is difficult to access your money after you have invested it.

Obviously, this means that you do not want to use these types of investments if you need your money right away. If you want to make a long-term investment, working with private syndicators is a good idea. People can also get started by learning about the program through Syndication School. Because there are good and bad syndicators, it is important to look for red flags before you start passive investing with them. If you are comfortable working with a certain kind of commercial real estate, you should find a private syndicator that works in that sector.

As you look at different syndicators, you should read reviews from people who have already invested with them. You should also look at their results. How do they compare to similar organizations?

Some syndicators like to inflate how much they earn, so watch out for this issue. If one apartment complex is twice as profitable as other complexes in the same area, you should be suspicious. The company needs to have a good explanation for why they are earning so much more money than everyone else. If they do not have a reasonable explanation, you should invest with someone else.

 

Forging Your Own Path to FIRE

In order to become financially independent, you need to look at your burn rate. This figure is the amount you end up spending on your lifestyle and living expenses each year. To retire early, you must be able to cover your burn rate each year. You need to make a passive income stream that can cover your burn rate. If passive investing brings in more money than your burn rate, then you can afford to live a more luxurious lifestyle.

Do not be discouraged if you cannot retire right away. Because of compound interest, your earnings will grow over time. In order to retire comfortably, you will need to save 25 times your annual expenses. This means that you will need $1.5 million in the bank if you need $60,000 a year.

XRAYVSN is working toward an even more conservative goal. Instead of pulling 4 percent out of his retirement savings each year, he plans on only using 3 to 3.5 percent. To achieve this goal, he is bringing in passive income through his blog, private syndicators, and commercial real estate.

As an accredited investor, he can access more investment types than the average investor. Despite his accredited status today, he originally started out with simple crowdfunding investments. Even if all you can do is start small, you can eventually work your way up to accredited investing and achieve your FIRE goals.

 

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The Three Pillars of a Deferred Sales Trust Marketing Campaign

In a previous blog, I explained what the Deferred Sales Trust™ is and how it works. But how do you unlock the power of the Deferred Sales Trust to unlock capital from new sources and from existing ones? In this blog, I’ll explain the three pillars of creating a Deferred Sales Trust marketing campaign and how this tactic will inform your current investors about your strategy and attract a sea of new accredited investors.

 

What kind of investor will a Deferred Sales Trust marketing campaign attract?

A Deferred Sales Trust marketing outreach campaign will allow you to attract ultra-high net worth investors from a diverse set of investments. By ultra-high net worth investors, I’m referring to those who have estate tax challenges (net worth above certain limits). For example, a recent ultra-high net worth Deferred Sales Trust client of Capital Gains Tax Solutions who has a net worth of $25M was selling a multifamily property in Colorado. They felt stuck since they had next to zero basis, $1.8M in capital gains tax liability, did not want 1031 and overpay for a property and they were facing a 40% estate tax if they just kept 1031 exchanging. They decided not to sell, that is, until they learned about the Deferred Sales Trust because it solved problems for them and moved them one step closer to their ideal wealth and estate plan.

By a diverse set of investments, I’m referring to those who own other asset types, other than real estate; such as cryptocurrency, businesses, artwork, collectibles, and public stock all of which are not 1031 eligible. Yes, all kinds of asset types, not just real estate. Also the ultra-high net worth investor.

Since a Deferred Sales Trust marketing plan focus allows you to attract the ultra-high net worth investor from a diverse set of investments, you will increase the amount of money you can raise and open up a blue ocean opportunity. The more investments you raise from ultra-high net worth investors the bigger deals you can do. A Deferred Sales Trust marketing campaign is a key to scaling, raising capital for your syndication business, and serving your current investors who want to sell the other assets they own and invest with you.

 

The three pillars of a Deferred Sales Trust marketing campaign.

Now that you know the benefits of the Deferred Sales Trust marketing campaign, what are the best practices to create and grow one? I find that there are three pillars to a Deferred Sales Trust marketing campaign.

 

  1. Attract the ultra-high net worth investor from a diverse set of investments.

To attract the ultra-high net worth investor from a diverse set of investments you have to identify the problem, ask them to clarify their ideal outcome, and deliver a proposal to solve their problem while helping them unlock their ideal outcome. Be specific here. What assets of all kinds do they own now? What is their capital gains tax if they sold? Why haven’t they sold? What would cash flow mean to them? What would diversification mean? How much more impact will they have on their family and causes they believe in by moving funds outside of their taxable estate?

Step one is to attract ultra-high net worth investors from a diverse set of investments. Pro tip: start with your existing investor base and then branch out to new investors.

The second part is capturing their interest in the Deferred Sales Trust. Create a landing page with a free e-book and title it, “Eliminate the 1031 exchange forever: how to defer capital gains tax of any kind and invest passively with NAME OF YOUR COMPANY.”

 

  1. Host live hands-on workshops to educate on the Deferred Sales Trust. 

Once someone has shown interest, you need to help them take the next step by walking them through step by step how this works.

The more clarity and deal stories you provide through Deferred Sales Trust content, the more they will see the benefits and be attracted to use the DST.

 

  1. Scale your business.

After attracting the ultra-high net worth investor and delivering the Deferred Sales Trust and your CRE investment opportunity to help them reach their ideal wealth plan, the investors’ confidence in you will grow and they will invest in your deal with you. But this isn’t the end of the strategy. As you convert more and more of your existing clients using the Deferred Sales Trust, referrals will come and a new blue ocean of investors will come.

To benefit the most from a Deferred Sales Trust marketing campaign, you need to capture their story and then share their story. My favorite is via a video/podcast which I post on Youtube, Itunes, and Spotify to name a few.

 

Would the Deferred Sales Trust marketing campaign work for my business?

Overall, a Deferred Sales Trust marketing campaign is a great way to efficiently scale raising capital for your syndication business. The strategy is to attract ultra-high net worth investors with a lead magnet and develop the relationship through providing a solution to their capital gains tax problem which helps them take one step closer to their ideal wealth plan. Then, as existing investors are converted to Deferred Sales Trust investors, capture their story on a video/podcast to scale even more.

 

About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral experts and informative speakers in the nation. His audiences are challenged to create and develop a tax-deferred transformational exit wealth plan using The Deferred Sales Trust™ (“DST”)  so they can create and preserve more wealth. Brett is the Founder of Capital Gains Tax Solutions and host of the Capital Gains Tax Solutions podcast. Each year, he equips hundreds of high net worth business professionals with the DST tool to help their high net worth clients solve capital gains tax deferral limitations.

 

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How to Scale Raising Capital For Your Syndication Business Using The Deferred Sales Trust™ (DST)      

A Deferred Sales Trust offers a unique way to unlock capital from accredited investors who are selling highly appreciated assets of any kind. Armed with this information and insight you can position your business as a solution for your current investors and attract future investors like never before.

 

Why use the Deferred Sales Trust™ (DST)?

A Deferred Sales Trust marketing campaign unlocks many different ways to raise capital.

Examples of this include:

  • The sale of a primary residence.
  • The sales of active investment real estate (this includes saving failed 1031 exchanges).
  • The sale of a business.
  • The sale of cryptocurrency or stock (public or private).
  • The sale of artwork, collectibles, rare automobiles.
  • The sales of carried interest.
  • The sale of GP or LP positions in your existing syndications.
  • The sale of any kind of asset which is subject to U.S. capital gains tax.

 

What is a Deferred Sales Trust?

The Deferred Sales Trust has a long track record of success and has withstood scrutiny from both the IRS and FINRA since 1996. Since it is a tax strategy based on IRC §453, it allows the deferment of capital gains realization on assets sold using the installment method prescribed in IRC §453.

In simple words, if you sell an asset for $10 million using an installment sale contract, and finance the sale, you as the seller may not have received full constructive receipt of the cash. You have become the lender. You do not pay tax on what you have not received if you follow IRC §453 since it allows you to pay tax as you receive payments. The buyer you lent money to will typically pay an agreed-upon amount of down payment to you upfront (you would pay tax on this) and then pay the rest of the purchase price to you plus interest in installments over a specific term of time. The deferral takes place as you wait to receive payment, which is typically 3-5 years.

According to the Oklahoma Bar Association, IRC §453 was designed to “eliminate the hardship of immediately paying the tax due on a transaction since the sale did not produce immediate cash. Furthermore, if the purchaser defaulted on the installment note, the seller may have paid tax on money he never actually received.”

 

How a Deferred Sales Trust can help you scale your syndication business.

The reason why a Deferred Sales Trust marketing campaign allows you to scale your syndication business is that it rapidly increases the money-raising process. Without a Deferred Sales Trust, you need to manually raise capital from family, friends, and others in your circle of influence, one person at a time after they sell their highly appreciated asset and after they have paid the capital gains tax which can be 30-50% of their gain. When the pain of paying the tax outweighs selling and investing with you, many elect not to sell and therefore not invest those funds with you. To raise the capital you need to solve the problem your investor is facing.

Capital Gains Tax Solutions Case Study 1: Saving a failed 1031 exchange. Dave’s story.

Steps to Dave using the Deferred Sales Trust:

  1. Sold 128 unit apartment complex for $7.6M.
  2. Funds sent to 1031 Qualified Intermediary.
  3. 1031 failed and funds sent to Deferred Sales Trust (DST) Bank Account including deferral of $1.1M of capital gains tax.
  4. Some of the funds sent to an apartment syndication fund and to an individual apartment syndication deal.

 

Have you done a survey of your existing investors to ask them where their capital is? Here are two questions to ask your existing investors right now:

1) Do you have highly appreciated assets of any kind you would like to sell, defer the tax, and invest the funds into real estate all tax-deferred?

2) What would converting your highly appreciated asset, which may not be producing cash flow of any kind, to cash flow from passive real estate mean to you?

I believe you are more likely to stay top of mind and unlock capital when you can help your investors by providing valuable solutions to their capital gains tax.

 

Capital Gains Tax Solutions Case Study 2: Selling a business and building 70+ multifamily units in Tennessee. Shea’s story.

Steps to Shea Using The Deferred Sales Trust:

  1. Shea sold his marketing business for $2.6M. (It did not qualify for a 1031 exchange)
  2. Funds sent to Deferred Sales Trust (DST) Bank Account including an extra $600,000 of capital gains tax-deferred.
  3. Some of the funds invested into active new contraction of 70 units in Tennessee which he is building with his partner.

 

About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral experts and informative speakers in the nation. His audiences are challenged to create and develop a tax-deferred transformational exit wealth plan using The Deferred Sales Trust™ (“DST”)  so they can create and preserve more wealth. Brett is the Founder of Capital Gains Tax Solutions and host of the Capital Gains Tax Solutions podcast. Each year, he equips hundreds of high net worth business professionals with the DST tool to help their high net worth clients solve capital gains tax deferral limitations.

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Raise More Passive Investor Money With This One Simple Trick

If you are looking for ways to make money, don’t overlook this one simple trick. You can make a lot more money by putting yourself in front of high-income individuals. Find creative ways to reach that goal so that you can get the results for which you have been looking.

Why You Need High-Income Individuals

Making money is simple when you know what steps to take. Raising money requires you to follow the right process, and keeping our simple tip in mind helps. Putting yourself near high-income people is a critical part of the process for several reasons. No matter if you do active real estate investing or something else, put yourself around people who can afford what you sell.

You want to spend as much time as possible with those who are interested in what you sell. This lets you make as many sales as possible while boosting your profitability, and learning how to do it is not hard.

How I Approach Conversations

You can use any approach you like, but I have a certain way I approach prospective clients. I used to fly coach to save money. I tried having conversations with the people I met in coach, but many of them were not my ideal prospects. After I gave it some thought, I upgraded to first class to see if I could meet better prospects. Being in first class put me in touch with the right people. I start by making a simple conversation and seeing if they are interested in speaking with me.

Use Other People’s Money

You will now learn how to use other people’s money to enhance your profit. Doing so is not always easy at first, but it gets better as time goes on. You begin by learning to invest in commercial real estate. Once you learn the process, you show your prospects that you know what you are doing so that they trust you.

Once you earn their trust, you offer to invest their money for a share of their profits. You can make a lot of money with commercial real estate if you know what you are doing, and you will be happy with the outcome you achieve. You show your clients what investments to make. In some cases, you manage their portfolio and offer ongoing advice. You get a share of their profits in exchange for your support and guidance.

Explain Your Approach to Investing

When I approach people on the plane, I explain my approach to investing. You don’t want to talk about things that are not important to your prospective customers. If you would like to enjoy the best possible results, refine your approach as much as possible.

Don’t talk about things that distract your prospects from your offer, and you will get better results. Explain how much money you make and the process you use to make it. Give them an overview of what you do and give them reasonable tips they can follow, and you will be on the right track.

Get Their Contact Info and Add Them to Your Email List

After speaking with your prospective clients for a while, find out if they are interested in what you are saying. Talk to them about what you offer and how it can benefit them over the long run. Don’t talk too much about what you achieve unless you relate it to the benefits you can provide them. You want them interested in what you have to offer, and they will want to stay in touch with you.

Watch their expression to see how interested they are in your services and products, and you will know how much they want to listen. Go into the conversation without being too pushy at first because high-income people get approached by marketing teams all the time. Try being as personable as you can until you gain their attention.

The amount of time you spend speaking with them depends on their level of interest. Don’t waste time getting the phone numbers of those who are not interested. However, you have nothing to lose by getting their email address. You add their email address to your email list and stay in touch over time. After you add them to your list, advertise to them after earning their trust. You improve your odds of success and boost your odds of reaching the outcome you hand in mind from the start.

Think of Ways to Put Yourself in Front of More High-Income Individuals

Raising money for your business does not have to be a difficult or challenging task. You must develop a plan and think of creative ways to get the outcome for which you have been searching. Get a pen and sheet of paper to write down additional ways you can put yourself in front of high-income individuals, and you will be on the right path in no time.

You will know your active real estate investing plan is in the best possible shape when you see what you can achieve. Next, go over your ideas and find new ways to make them stand out even more. Enhance your ideas as you move forward so that you can get even better results. You will be glad you did.

Final Thoughts

If you would like to take your commercial real estate investments to the next level, put yourself in front of high-income people. These people know what it takes to build their portfolios, and they have the capital to make it happen.

Putting yourself near them is a powerful way to find prospects on which you can depend. You can put yourself in the first-class section of planes, or you can find other ways to get in touch with the people who are the most likely to help you make a profit.

Remember to have your top selling points on hand if you would like to get the most from your effort. Go into each interaction assuming the sale. Get your prospects interested in your offer if you want to earn the sale, and you will go far.

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How to Grow Your Business Using TikTok

How Antonio Cucciniello Found Success Marketing On TikTok

The social media sphere is a hotspot for entertainment, community, and collaboration. Best of all, these platforms offer opportunities to expand your reach, market yourself, and promote your business. Antonio Cucciniello, a real estate investor, is proof that present-day websites and modern applications are practical advertising tools. TikTok, specifically, has allowed Cucciniello to gain new clients and investors.

Much like any functioning member of society, Cucciniello is no stranger to social media. For years, Cucciniello posted videos to YouTube. After four years and 500 videos, he only amassed 300 subscribers. Meanwhile, his Instagram following was lagging, which proved detrimental to his active and commercial real estate investing efforts. Eventually, Cucciniello discovered the power of TikTok.

In the hopes of advancing his career, Cucciniello hopped on the bandwagon. He got his first taste of social media success after publishing a TikTok video. Within one day, Cucciniello’s TikTok post received 52 views, and he gained 150 followers by the end of the week. Before long, Cucciniello went viral, earning 130,000 views on a video that poked fun at terrible tenants. Since his partial claim to fame, Cucciniello’s devised a sound strategy on how to market on TikTok.

In his experience, Cucciniello’s found that instructional videos typically gain the most traction. Whether you’re discussing how to scale a business or change a tire, Cucciniello maintains that audiences love to learn. He then goes live to talk more in-depth about the content. To increase consumer engagement, he welcomes questions. According to Cucciniello, being controversial is one surefire way to go viral. However, he usually sticks to humor, dancing, and general amusement to appeal to audiences.

Cucciniello is far from the first to unlock TikTok’s marketing potential. In fact, many are gravitating to this platform in an effort to gain more exposure. As a result, industry experts are providing insight on how to scale a business on TikTok. By heeding the following advice, you can reap the benefits of TikTok’s massive following and ever-expanding platform.

How To Market On TikTok

Know What You’re Working With

Arming yourself with pertinent information is a crucial first step. After all, to get the most out of the platform you’re using, it’s critical to learn, analyze, and monitor it. For instance, watch videos that are circulating the platform, note similarities between them, and develop ways to apply this knowledge to your specific content.

Don’t Overthink It

While it’s important to be deliberate in your approach, don’t give entertainment the back seat. In other words, infuse some fun into your content. Even if you’re talking about active real estate investing, you can find ways to inject lightheartedness into your videos. In essence, if you find a happy medium between informative and entertaining, you’re bound to reel in a wide audience.

Work With Other Influencers

On TikTok, there’s strength in numbers. Find someone who’s on your same playing field, and collaborate. Studies show that traditional marketing doesn’t interest Generation Z. With that said, you have to think outside the box. By partnering with other influencers, you can subliminally market your platforms while giving viewers the engaging content they desperately desire. Not only will you be able to reach a dynamic viewership, but you’ll also start making beneficial connections.

Look Into TikTok Advertising

As a powerhouse in the social media realm, TikTok’s introduced unique campaign strategies to its platform. Native content, brand takeovers, hashtag challenges, and branded lenses are the marketing resources they’ve created. Each offers its own perks, so you’ll need to gauge which option is best for your business. No matter what you decide, TikTok’s taken a calculated approach to ensure that your marketing methods breed some results.

Stay True To Yourself

Above all else, don’t attempt to be someone you’re not. While it’s prudent to emulate a person’s recipe for success, recycling someone else’s content won’t prove effective. Instead, highlight the qualities and strengths that set you apart. Most importantly, don’t shy away from topics that interest you. Even if you think that commercial real estate investing won’t attract viewers, you’d be surprised how many niche communities there are on TikTok. Simply put, don’t stray too far from your roots, and you’ll inevitably succeed.

Using the above story and advice as inspiration, you can effortlessly grow your business on TikTok. Whether you’re into active real estate investing or tree shaping, there’s a place for all on TikTok’s inclusive platform. Build your brand with confidence and ease when you start your TikTok journey today.

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Three Ways to Maximize Profits Through Real Estate Crowdfunding

If you want to make more money with real estate, consider the benefits of crowdfunding. Not many real estate investors use crowdfunding to boost their profits. Although not all investors use it, crowdfunding is a powerful way to reach higher levels of success.

Learn about crowdfunding and how it works if you are ready to take your results to a new level. In simple terms, crowdfunding uses investors to get projects off the ground. You are about to discover three tips that maximize your crowdfunding profits. Follow these tips to take your profit to where you have always wanted it. You will soon have everything you need to take your real estate investments to a whole new level.

Benefits of Crowdfunding

Crowdfunding is a powerful way to reach your investment goals. Some people think of it as normal investing, but there is a difference. With normal investing, you have a small group of investors who invest in your active real estate investing program. You can even use crowdfunding for your passive investments if you know what you are doing. With crowdfunding, you use a large group of investors to fund your projects.

This works well if you don’t have enough high-income investors. Crowdfunding is also a great way to establish social proof and get followers. If you are in the early stages of growing your active real estate investing platform, you can enjoy the rewards in no time. The right crowdfunding campaign also serves as a marketing tool. You get your product or service in front of more people while gaining as much traction as possible.

How Crowdfunding Works

Learn how crowdfunding works to get an even better picture of what to expect. With crowdfunding, you use your own platform or build one yourself. You give a description of your investment platform and begin marketing your project.

You want to get as many people to sign up as possible, and make sure they know that even small donations help. You will be on track in no time if you follow the right steps. Get your crowdfunding page on social media for enhanced results, and you should have plenty of interested investors in no time. Setting goals and milestones is another vital part of real estate investing.

If you build a following and let people feel connected to your project, they want you to reach your goals. List the names of those who invest and the amount they invest. People want recognition for what they do, so this approach makes them more likely to invest larger amounts. Let prospective investors know what they gain by investing in your project, and you will see the difference in your bottom line.

Invest Your Own Money

Investing your own money is a huge part of the process. With active real estate investing, you want to show your prospective clients that you also believe in your project. If they don’t know you believe in your own projects, they are less likely to invest. You have to lead by example if you want to enjoy positive results over the long run.

You don’t have to invest a large amount, but you should at least invest as much as your average investor to get the outcome you want. Doing so shows your prospects that you believe in your project and that you are not asking them to put money into something unlikely to provide the outcome for which they are looking.

Create Your Own Crowdfunding Portal

Create your own crowdfunding portal if you are ready to get the outcome you need. Rather than using a popular site, consider creating your own crowdfunding portal. Doing so gives you several benefits you might want to explore. First, having your own crowdfunding portal makes you look more professional.

Anyone can create a crowdfunding page on one of the existing channels, but creating your own portal or website shows dedication. Hire a developer to set up everything, and you will move forward with confidence and peace of mind. Make sure you get a developer who has experience dealing with crowdfunding.

Your developer will learn about your business and help you craft results on which you can depend. When you are ready to launch your portal, make sure you and your developer are on the same page. A good developer asks questions and makes an effort to understand your business model, and you will have no trouble moving forward or reaching your desired outcome.

Hire a Legal Team

If you are learning how to scale a business, consider hiring a legal team. You want to make sure your new crowdfunding project goes as smoothly as possible, and you will be happy with the outcome you get.

Your legal team ensures you are in compliance with the law and that you don’t run into unneeded issues along the way. Having a legal team on retainer gives you confidence and peace of mind. You want to explore your options and find a legal expert who makes sense for you. If any unexpected legal issues come up, you will already have a solution on hand.

Final Thoughts

If you want your real estate crowdfunding project to go well, it’s important you follow the right steps and keep your needs in mind each step of the way. You must keep your goals in mind and make sure you don’t have any issues reaching the outcome you had in mind from the start.

Investing your own money shows you are serious about your project, and having your own portal shows you have dedication. Your legal team will keep everything else on track while you learn how to scale a business. Your business will thrive when you follow the right process and remain focused on your needs and goals.

You take your results to a whole new level in no time and achieve the outcome for which you have been looking. Keep an eye on your crowdfunding project to make sure everything is going according to plan. If you do so, you will have no trouble reaching your desired outcome.

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Assumable Commercial Real Estate Loan – Potential Pros and Cons

When considering your debt options for a commercial real estate deal, you have two main options:

  1. Secure new debt
  2. Assume the existing debt

If the owner pre-negotiated an assumption right into their loan documents, once they go to sell the property, potential buyers have the option to assume the existing the loan. That is, the existing loan is transferred from the current borrower to the new borrower at the same terms.

When you are analyzing an on-market deal, there is typically a section in the offering memorandum that states whether the loan is assumable. When you are analyzing an off-market deal, you will need to ask the owner if the current debt is assumable.

There aren’t absolute pros and cons of an assumable loan because the benefits and drawbacks vary based on the buyer’s financials and experience, the terms of the existing loan, the type of existing loan, and the market conditions. So, instead. Let’s focus on the potential pros and cons of assuming a loan.

Potential Pros of an Assumable Commercial Real Estate Loan

Time Savings: Loan assumptions can be approved in as little as 30 days (maybe even sooner) whereas a new loan may take a few months to complete due to the extra documentation required.

Money Savings: Because the loan assumption process may be shorter and requires less documentation, the costs incurred via lender fees are typically lower than the costs incurred from securing a new loan.

Better Terms: The buyer has the opportunity to receive better loan terms – a lower interest rate, fixed interest rate, longer term, etc. – than they would of if they secured a new loan.

Lower Down Payment: When a buyer assumes a loan, the down payment is equal to the difference between the amount owed by the debt and the sales price (i.e., the equity). If the owner doesn’t have a lot of equity in the deal, the down payment may be lower than the down payment on a new loan.

More Attractive Deal: Because of the aforementioned pros of the assumable loan, a seller may attract more buyers as well as sell the property faster.

Potential Cons of an Assumable Commercial Real Estate Loan

Longer Approval Process: if the current loan is overly complicated, the loan approval process can take longer than the process of securing a new loan.

One Lender: The buyer who is assuming the loan is forced to work with the lender that holds the existing debt.

Higher Down Payment: If the owner has a lot of equity in the deal, the down payment may be higher than the down payment of a new loan.

Worse Terms: if the terms of the existing loan aren’t as favorable as the current market terms, the debt terms could be worse than the terms of a new loan.

Won’t Qualify for the Assumption: Lenders have broad discretion when qualifying a buyer for an assumable loan. For example, they will want the buyer’s financials and experience to be similar to those of the current owner. So, the buyer may not qualify for the assumption.

Because of these potential cons, it is important to have financing contingencies in place in your contract and have a few lenders on back-up in case you don’t qualify for the assumption.

 

 

 

 

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Hud Loan Programs for Apartment Syndicators: Everything You Need to Know

Hud Loan Programs for Apartment Syndicators: Everything You Need to Know

Let’s talk about one of the top loan program providers that apartment syndicators use on their deals: Hud.

Hud can be a great option for apartment deals. We’re going to cover each of their common loan programs, including their permanent, refinancing, and supplemental loans.

Loan 1: 223(f)

The first Hud loan, which is the permanent loan, would be the 223(f). This is very similar to agency loans, except for one major difference: processing time. Plus, the loan terms are actually a little bit longer. So for the 223(f), the loan term is going to be lesser of either 35 years or 75% of the remaining economic life. 

So if the property’s economic life is greater than 35 years, then your loan term is actually going to be 35 years. It’ll be fully amortized over that time period. Whatever the loan term is what the amortization rate will be. If you’re dealing with a smaller apartment community under the $1 million purchase price, then this is not going to be the loan for you.

In regards to the LTVs, for the loan-to-values, they will lend up to 83.3% for a market rate property, and they will also lend up to 87% for affordable. So that’s another distinction of the housing and urban development loans, which is they are also used for affordable housing. There will be an occupancy requirement, which is normal for most of these loans. 

The interest rate will be fixed for this loan, and then you will have the ability to include some repair costs by using this loan program. For the 223(f) loan, you can include up to 15% of the value of the property in repair costs or $6500 per unit. If you’re not necessarily doing a minor renovation, but if you’re spending about $6500 per unit overall, then you can include those in the loan.

The pros of this loan are that they have the highest LTV. You can get a loan where you don’t have to put down 20%; you can actually put down less than 20%. It also eliminates the refinance as well as the interest rate risk, because it is a fixed rate loan, and the term can be up to 35 years in length. You won’t have to worry about refinancing or the interest rate going up if something were to happen in the market. 

These loans are non-recourse as well as assumable, which helps with the exit strategy. There’s also no defined financial capability requirements, no geographic restrictions, and no minimum population. There’s essentially no limitation on them giving you a loan for a deal if the market doesn’t have a lot of people living in it or the income is very low. 

There are also some cons involved when considering a Hud loan. The processing time is much longer than some. The time for a contract to close is at a minimum of 120 days to six or nine months is actually common. Other loan providers have processing times between 60 and 90 days. Hud loans take a little bit longer to process. They also come with higher fees, mortgage insurance premiums, and annual operating statement audits.

Loan 2: 221(d)(4)

The next Hud loan is 221(d)(4). These are for properties that you either want to build or substantially renovate. 

Similar to the 223(f) loan, these loans do have very long terms. The length of the loan will be however long the construction period is, plus an additional 40 years. That is fully amortized. 

This isn’t the loan for smaller deals, because the minimum loan size is going to be $5 million. So if you have a deal that you want to renovate and has got a $1 million purchase price, you’re going to have to look at some other options. 

Similarly, this is for market-rate properties as well as affordable properties, with the same LTVs of 83.3% and 87% respectively. These loans are also assumable and non-recourse as well as fixed interest with interest-only payments during the construction period.

The CapEx requirements for this loan are quite different than the 223(f). For the 223(f), it was up to 15% or up to $6500 per unit, whereas for the 221(d)(4) loan actually needs to be greater than 15% of the property value or greater than $6500 per unit. 

The 221(d)(4) pros and cons are pretty similar to the 223(f) pros and cons. There’s the elimination of the refinance and interest rate risk, because of that fixed rate in a term of up to 40 years. They’re also higher leveraged than your traditional sources. Those longer processing time and closing times can be a pain. There’s going to be higher fees, and you also have those annual operating audits and inspections.

Loan 3: 223(a)(7)

Hud also offers refinance loans as well as supplemental loans for their loan programs. Their refinance loan is called the 223(a)(7).

If you’ve secured the 223(f) loan or you’ve secured a 221(d)(4) loan, you’re able to secure this refinance loan, and it has to be one of those two. You can’t go from a private bridge loan to this refinance loan– that’s not how it works.

The loan term for the refinance loan is up to 12 years beyond the remaining term, but not to exceed the term. If your initial term was 40 years and you refinanced at 30 years, then this refinance loan will only be 10 years, because it can’t be greater than 40 years. 

It will be either the lesser of the original principal amount from your first loan, or a debt service coverage ratio of 1.11 or 100% of the eligible transaction costs. These loans are also fully amortized. The occupancy requirements are going to be the same as the existing terms for the previous loan. These are also going to be assumable and non-recourse with that fixed interest rate.

Loan 4: 241(a)

Hud also has a supplemental loan program available, which is the 241(a). This is only probable if you’ve secured the 221(d)(4) or 223(f). 

The loan term is coterminous with the first loan. Whenever you acquire it, it’s just going to be the length of the remaining loan. You’re essentially just adding $1 million or $5 million to your existing loan. 

Your loan size can be up to 90% of the cost of the property, so essentially a 90% LTV, because you need to have at least 10% of equity in the property at all times. It’s going to be fully amortized. 

They’re also going to base the loan size on the debt service coverage ratio. Because of this, it needs to be 1.45. That’s a ratio of the net operating income to the debt service. Then, the minimum occupancy requirements are going to be the same as whatever the terms are for your existing loan. Like all the loans, they’re assumable, they are non-recourse, and the interest rate is fixed.

And that’s it for Hud loans! What do you think about taking out loans through Hud for real estate purposes? Tell us what you think in the comments below!

Image Courtesy of Pixabay

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How To: Creative Financing for Real Estate

How To: Creative Financing for Real Estate

On a recent Situation Saturday segment on the Best Real Estate Investing Advice Ever podcast, Joe Fairless spoke with CEO Todd Dexheimer, CEO of Venture D Properties, LLC about creatively financing in the real estate business. How do you do that? Luckily, we got someone who not only knows how to do that, but he actually did it as well. And the story behind how his latest deal came to be is an all too familiar one to real estate investors.

The latest deal I did, which I think we can spend the most time on, was about 120-unit apartment complex,” Dexheimer said, “and I put it on a contract with the intention to just get regular financing on it. Well, I shouldn’t say regular financing. The property was 78% occupied. So, it was low occupancy, and it needed some work. So, sixty of the units had been renovated to a pretty good standard, but basically, the rest of the units needed a pretty substantial renovation. So, I needed to get either a bridge loan, a local bank loan, or seller financing, and as I went through this deal, I just didn’t want to use a bridge loan because they’re expensive. So, anybody who has done a bridge loan understands the expenses.”

This is very true. While a bridge loan can be helpful in the scope of buying a new property, there are many downsides to this type of financing. You’ll likely have to pay very high-interest rates and APR. Some lenders utilize a variable prime rate that can increase over time as well.

“So I was trying to get local bank financing, but I had kind of three strikes against me. The first strike was the fact that I was out of state. The second one is [that] I’m syndicating the deal, and the third one was the deal wasn’t stabilized. It was 78% occupied. So, three strikes against me. The local banks were very hesitant. I did have one local bank that was semi-interested, but we were running out of time. My earnest money was going to become hard. So, I said, ‘Look. Let’s do seller finance,’ and I approached it at that level, and we ended up working out a deal.”

Seller finance is essentially a real estate agreement in which financing is provided by the seller and included in the purchase price.

There are many benefits for both sellers and buyers when it comes to seller financing. From the buyer’s perspective, selling financing is one of the best alternatives to a standard bank or bridge loan. For real estate newbies who may not be able to pay that standard 20% down payment, it may not be the best option. But for those who are ready to invest, it’s very doable. Sellers can also benefit from seller financing by essentially using the loans as a form of additional income. Seller financing is essentially just real estate investment, just with a personal edge.

What do you think about creative financing strategies? Tell us about it in the comments below.

 

Photo source: Pixabay

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skyline district in Houston, Texas

Property Investment Strategies: Raising Money for Real Estate Investment vs Crowdfunding

You’ve promised yourself that you’ll take your real estate investing career up a notch this year. But you know good and well that you can’t make big moves in real estate without big money. And unfortunately, that’s a level of money you don’t have.

Yet.

Just because you don’t have a large sum of money in the bank to fund your real estate investment deal doesn’t mean you can’t get it. But what’s the best way to go about raising money for real estate syndication, for example? Let’s take a look at a couple of common property investment strategies: raising money from a few accredited investors versus crowdfunding for real estate deals.

 

Syndication Deals

If your business plan is to buy and sell apartment complexes, as I do, it helps to have the financial backing of investors with whom you already have relationships. This may include family/friends, property owners, doctors, attorneys, financial planners, accountants, and business associates.

Essentially, you present them with the details of the deal and they passively invest if they feel like your project is a good fit for them. Pursuing capital from a handful of accredited investors means building trust and networking with those you know may be interested in your next big deal. It also means choosing high-net-worth and business-savvy individuals to whom you can bring future deals and work with them over and over.

 

Crowdfunding for Real Estate Deals

With crowdfunding, you place your deal up on a site or other media where investors come to find a deal. This leaves you (and your real estate business) at chance’s mercy. Under this strategy, not only are you not actively seeking investors for your deals but those who respond to your post may not offer much value to you. For example, it may be someone with only a couple thousand dollars to invest, which is great if your deal is small or you’re willing to have lots of different people involved in a single deal, but is not so great for larger, more expensive properties or if you’re looking for a more streamlined process.

 

Plus, it is likely the investors who contact you as you’re crowdfunding for real estate deals will be unknown to you, meaning you cannot be sure of the validity of their business practices. You don’t want to end up getting scammed by illegitimate lenders.

 

Why Not Bank Loans?

Both syndication and crowdfunding are generally inexpensive and not as time-consuming as going through the traditional bank lending process. As a result, they’re two of the best property investment strategies if you have a time-bound and specific real estate investment goal. At the same time, it does take time and work to convince others that your cause is worth investing in. When done properly, though, it can be a very promising way of upping your game in the real estate world.

 

Start Investing in Real Estate Today with the Right Property Investment Strategies!

If you’re eager to build up your bank account and thrive like never before in the world of real estate, it’s critical that you employ the right property investment strategies. Get in touch with me, Joe Fairless, to discover which investment strategies are proven to work and which ones may be most suitable for you.

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team putting their hands together

How to Find Passive Investors Regardless of Where You Live

At the end of 2017, we closed on our 12th property, which put our companies portfolio at over $250,000,000 (click here to see the lesson I learned on our 11th deal). Since the quarter billion dollar mark was sort of a milestone, I thought it would be interesting to look at where my potential and current investors live to see if there was anything we could learn from it regarding how to find high net worth investors.

 

Yes. Yes, there is.

 

Before we look at the stats, let’s define a couple things.

 

I define Potential Investors as those who are accredited, with whom I have a relationship, and who have expressed interest in investing with me but have not done so yet. Current Investors are accredited investors with whom I have a relationship that are currently investing in my apartment deals.

Now let’s dig into the stats of my real estate investor network.

 

Top 5 Cities with the most Current and Potential Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 10%
  3. Los Angeles: 9%
  4. Houston: 5%
  5. San Francisco: 4%

 

So, out of all my Current and Potential Investors across the United States, 18% live in NYC, 10% live in DFW, etc. This makes sense for a handful of reasons.

First, they are large cities (ex. Population of NYC is 8M+).

Second, I lived in NYC and DFW, so I have family and friends there.

Third, our properties are in Texas, so DFW and Houston investors have a level of familiarity with the market they are investing in. They see the same thing we see in terms of population growth, job growth, economic outlook, etc.

Now let’s look at the Top 5 cities with the most Current Investors (removing Potential Investors).

 

Related: Top 5 Essentials for Raising Capital

 

Top 5 Cities with the most Current Investors:

  1. New York City: 18%
  2. Dallas-Fort Worth: 11%
  3. Los Angeles: 6%
  4. San Francisco: 5%
  5. Tied- Houston, Miami, Austin, and Seattle: 4%

 

Ok, still making sense and for the same reasons stated above. Large cities, places I lived, areas in which I have family and friends residing, and, in three cases, investors in the same state as our multifamily deals (Austin, Houston, and Dallas-Fort Worth).

But here’s where the wrinkle occurs.

Let’s look at all the equity my investors have contributed to my apartment syndications and what percent of the total invested dollars is attributed to each city where my real estate investor network reaches.

 

Related: 4 Skillsets Needed Prior to Raising Capital for Apartment Deals

 

Top 5 Cities with Percentage of Investment Dollars in Deals:

  1. New York City: 18%
  2. Cincinnati: 13%
  3. Dallas-Fort Worth: 11%
  4. Miami: 7%
  5. San Francisco: 6%

 

…what in the Cincinnati just happened?!?!

 

Cincinnati isn’t a top 5 city of mine in terms of total number of Current Investors and/or Potential Investors. In fact, to dig deeper, Cincinnati only has 2.5 percent of my Current and Potential Investors living there. And only 3.5 percent of my Current Investors living there.
I am not from Cincinnati and, in fact, have only lived here for approximately 3 years. So, why does it represent 13 percent of all the equity invested in my apartment deals? The short answer is because I am actively involved in the local community. But that short answer doesn’t do the real lesson learned justice, so let me elaborate more.

Here’s how I did it:

 

  • Host a local meetup. The first month I officially moved to Cincinnati (because my wife is from here and she’s the love of my life, so I followed her to the city and now we’re here for the long-term), I started a meet-up. If you have time to ATTEND a meet-up then you have time to HOST a meetup. It doesn’t take that much more effort to host than it does to simply attend and the rewards for hosting are exponentially greater. I did this to make friends in Cincy. I didn’t do it necessarily to generate a real estate investor network but that’s exactly what it did.
  • Host Board Game and Drinks nights at your house. This Friday, my wife and I are having friends of ours, some of which are investors, come over to our house for a night of board games, drinks, and dinner. Hosting events at your house as couples, along with couples, is fun and goes a long way to continue to build your friendship with those locally.
  • Consistent online presence that has an interview component to it. Or, in short, my podcast. I interview someone Every. Single. Day. on real estate investing and have released an episode for the last 1,197 days. There are multiple benefits for doing this and I won’t get into all of them, but I will focus on one of the benefits and that is that every time I interview someone, they then want to share it with their audience, which helps expand my reach. And, if I interview people in my local market, that introduces new, local connections to me, which can then turn into business relationships since I get to have dinner, drinks, etc. with them. Here’s a post I wrote on the step-by-step process to create a real estate thought leadership platform.
  • Volunteer then become a board member for that non-profit. I had no intention to meet investors when I started volunteering for Junior Achievement. I have since realized, however, that by volunteering for a cause I feel strongly about (Junior Achievement helps kids in underserved communities learn financial and entrepreneurial skills,) I was able to connect with like-minded people and then become friends with them. I got on the board for JA in Cincinnati and have built friendships with people on the board, which then turned into business relationships where they invest in my deals. You could take the same approach, but make sure you genuinely believe in the cause and are doing it for the right reasons (i.e. helping further the cause’s mission) vs trying to grow your biz, otherwise, it will fall flat and won’t be fulfilling for you.

 

By doing these simple things, you can build a real estate investor network in your city that is perhaps stronger than any other network. When people personally know you, they are more likely to trust you, recommend you to others, and invest larger. The beauty in this is that it’s helpful for you, regardless of where you live.

 

Cincinnati is approximately the same size as St. Paul, Minnesota, Toledo, Ohio, Stockton, California and…Anchorage, Alaska. So, if you live in a city that is larger, then there’s really no excuse to not having all the capital you need for your deals. If you live in a city that’s smaller than Cincinnati (300k population), then you can still apply these principles, although it might require you to host your meetup in the next largest city next to where you live, that way you get better return on your time. Regardless, apply these principles and you will quickly build a local real estate investor network than can help you fund your deals.

 

Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book.

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The 3 Pillars for Building Relationships with High Net-Worth Investors

Any real estate investor can attest to the fact that relationships are one of the keys to growing a business. As an apartment syndicator myself, one of the main ways I have directly benefited from relationships has been my ability to meet potential passive, private investors.

 

Being a key to our success, we should be actively seeking out tactics and techniques for sharpening our relationship building skills. And, if we are raising money for our deals, this should be one of your top priorities – how to find high net worth investors.

 

Jason Treu is an expert in this field. He is an executive coach who specializes in teaching his clients how to strengthen their relationship building skills. Through his coaching, his clients have built relationships with industry titans such as Tim Cook, Bill Gates, and Richard Branson. In our conversation on my podcast, Jason provide his expert opinion on where to find high-net-worth individuals and outlined his three pillars for building relationships with them.

How to Find High-Net-Worth Individuals?

Building relationships, like building a business, is all about strategy. You need to have a plan, which starts with knowing where to go to maximize your chances of meeting the high-net-worth private investors or entrepreneurs who can help you along your real estate journey. Jason said, “I’ve found through a lot of research [that] some of the best people to meet are in charities and non-profit groups.”

 

Not only are these places where the people in attendance will have money, but they will also likely be altruistic. If it is a nonprofit or a charity, the whole premise is built around giving. “When you’re around people that have the mindset of giving and you build a relationship,” Jason said, “they’re much more open to helping you.”

 

Jason recommends Googling terms like “young professional,” “charity,” and “non-profit,” building a list of organizations and places in your local market and attending the ones that align with your interests the most. Go one or two times and determine if you like the people, the cause, and spending time there. If you do, get more involved. If the answer is no, find another one and repeat the process.

 

I can back up Jason’s advice with my personal experience. I’ve found that volunteering at local non-profits and charities is an effective, long-term approach to building relationships with high-net-worth private investors. And I’ve raised millions of dollars through these relationships. You can read more about my specific strategy here.

 

Additional strategies that I have found to be effective ways to meet high-net-worth individuals is to attend real estate conferences (more on this below), create a thought leadership platform (to build relationships in your sleep), get interviewed on other people’s thought leadership platforms, and start a meetup group.

 

Now that you know where to go, what are you supposed to do when you get there? How do you approach the conversations? Instead of winging it, follow Jason’s three pillars for successfully building relationships: 1) rapport, 2) likability and 3) trust.

1 – Rapport

First, you need to build rapport with potential private investors. To build rapport, you need to focus on your non-verbal and verbal communication skills.

 

Strengthening your non-verbal skills – like body language – is time intensive, but well worth the effort. Amy Cuddy, a social psychologist, specializes in this type of communication. Here is her TedTalk where she introduces her ideas. For a more in-depth explanation, Jason recommends reading her book, Presence.

 

Effective verbal communication is all about asking the right questions. When meeting someone for the first time, instead of the standard “how are you doing?,” Jason advises that you ask questions like “what’s the most exciting thing that’s going on in your life right now?” or “what are you passionate about outside of work?” or “what projects are you working on that you’re passionate about?”

 

Jason said that asking these types of questions will “connect them to their emotional side, and we’re all emotionally-driven people.” Have them talk about the thing in which they’re most interested. Then, draw something from your experience or interests to find common ground. Jason said, “that person will instantly like you significantly more because you found some common ground and you’re discussing something that they want to discuss, not what you want to discuss.” At that point, the conversation will flourish naturally.

2 – Likability

The second pillar is likability. The easiest way to get the other person to like you is to just listen. It’s not rocket science. “If you just look at someone and practice being present and don’t worry about who else is walking behind them, around them, you’d be amazed at how the tenor of your conversations and interactions will change, because they can tell when you’re distracted in the back of their mind.”

 

This pillar is simple – when having conversations with private investors and other professionals that may help you succeed, act as if the person sitting or standing in front of you is the most important person in the world. Listen intently and then, following the advice in pillars 1 and 3, build rapport and trust from there.

3 – Trust

Finally, the third pillar for building relationships is trust. The key to building trust is by showing them that you care. The most effective way to show that you care is by adding value.

 

Jason said, “You add value in the conversation in ways by suggesting things like maybe there’s a book, maybe there’s a person you can introduce them to, maybe you can say ‘I may have some ideas, let me follow up’ and then follow up with some ideas. You can also introduce them to people at the event.”

 

For those of you who are extroverted (or want to become extroverted), you can follow one of Jason’s favorite ways to add value to others, which is specific to events or conferences – he introduces strangers to other strangers. He will start a conversation with a stranger and, after asking the questions outlined in the section on rapport, will get the attention of another stranger nearby and say “Hey! You two should meet each other. I think you’d get along.” In doing so, next time he runs into either one of the strangers, they will introduce him to anyone they know, or even other strangers. With this tactic, two relationships with private investors can turn into 10 or 20.

 

Another level to this approach is to invite a group of strangers out for a meal. Again, this is specific to an event of conference, but it could also work at a charity or nonprofit event or meeting too. “[My] other option is inviting people to go and get together for brunch, for dinner, for lunch, and just inviting a bunch of people along, because everybody wants to meet new people.”

 

Even if nothing comes out of the actual meal (which is unlikely), by being the influential hub that brought all these people together, they will be more open to hearing your ideas and will likely return the favor by inviting you to other events. One of Jason’s friends used this tactic and met the nephew of Jerry Jones, the owner of the Dallas Cowboys. Now, he gets invited to a few Cowboy games each year and sits in the owner’s box!

 

My final tip regarding how to find high net worth investors for your next deal is to seek accredited investors who have the experience and capital to really help your business succeed!

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Top 5 Essentials for Raising Private Capital

Written By David Thompson, Thompson Investing

 

After 8 deals and $13 million raised in 18 months, I condensed my top ten tips to five essentials for successfully raising capital.  I continue to learn new things on every deal, but this is the best of the best so far.

 

If you can master the art and skill of raising capital, you have a big advantage.  It’s one of the top 3 skills in demand in this highly competitive and increasingly complex world according to Cal Newport in his book Deep Work.

 

Everyone seems to need capital to grow including startups, businesses, communities, nonprofits, you name it.  Even companies I’ve talked with that have a ton of experiences and rich capital sources are interested in talking with me because at the end of the day, it’s just human nature to grow.  A small firm can also negotiate better win / win terms from the operator’s standpoint versus wall street private equity that often may negotiate less than favorable terms with them.

 

Companies either want to grow bigger, faster, or take advantage of opportunities that often come in bunches instead of at systematic intervals.  Lack of capital stops ideas, companies and people from growing.  If you focus on this one skill you will have folks wanting to partner with you in a variety of areas.  Your goal will be to stay focused, establish key relationships with a few very experienced operators, build your reputation and network of investors by honing your craft and providing them with sound and logical opportunities while taking care of their needs.  So, here are my top 5 essentials for being successful in this area.

 

1) Partner with experts

  • You increase your experience and credibility faster when you are working with partners that are experts in what they do
  • You will be sharing good deals with investors in strong markets behind an experienced team
  • Your learning and development accelerates because experienced partners can share their knowledge. You’ll avoid newbie mistakes that can harm your reputation
  • Your brand becomes more known and credible building on an experienced partner’s track record

 

2) Be Yourself  / Authentic

  • Focus on education with investors as the primary objective
  • Don’t sell or appear needy. You have something that investors want
  • Being knowledgeable increases confidence and the investor will feel that you know what you are talking about. You will be more relaxed and natural when sharing the idea with investors.
  • Keep the message logical and simple. Frame the opportunity around a good market, a good deal with an experienced team behind it.  Share with them what’s driving value creation.
  • Prepare for investor questions: review my blog on 25 FAQs

 

3) Play to your strengths

  • Analyze your network and know where your investors are coming from
  • Focus on getting stronger in the areas of your strengths. Pick the top two areas you are finding most of your investors and develop a more comprehensive plan to further develop those areas
  • Don’t waste time in areas that aren’t working or are not natural paths for you
  • Bonus: Read StrengthsFinder 2.0 (Tom Rath) to help you understand the importance of playing to your strengths
  • Return customers and referrals are 85% of my business now so understand it gets easier over time

 

4) Raise min 25% more than you need

  • Know investors may change their mind for a variety of legitimate reasons such as pending job uncertainty, health or family emergency, unable to get liquid in time, etc.
  • Don’t be surprised when investors change their mind. Be mature and empathetic with the investor
  • Focus on building that long-term relationship so they are ready next time
  • To avoid big investor decommits, take half and put the rest on backup reserve in case you need it
  • Demand and interest increases when folks are put on backup. Psychologically, folks want in more when they can’t get in.  They assume they are missing out on a great opportunity

 

5) Develop a thought leadership platform for long term success

  • Building your brand requires a long-term strategy of developing content and knowledge share
  • Create good content for free and focus on educating others to increase awareness of your brand
  • Thought leadership ideas are blogging, podcast interviews, newsletters, videos, special reports, website, online forum or meetup group participation or start your own meetup group.
  • Most of my new leads today come from my thought leadership platform

 

In summary, building a foundation on these five essential factors will accelerate your capital raising efforts and enable you to add significant value to the partners you work with in your business while building an investor base that has confidence in the ideas you share with them.

 

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

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 Zook, 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.

 

Related: How Do I Know If I’m Ready to Become an Apartment Syndicator?

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.

 

Related: How a Wannabe or Experienced Investor Can Obtain a FREE or PAID Real Estate Education

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.

 

Related: Four Tips to Successfully Sell Yourself in Real Estate Investing

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.”

 

Related: A 5-Step Process for Raising BIG Capital for Multifamily Syndications

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.”

 

Related: Three Ways to Cultivate Word-of-Mouth Referrals

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.”

 

Related: 16 Lessons from Over $175,000,000 in Multifamily Syndications

Conclusion

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

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

 

If you’re looking for more unique ways to break into apartment syndication and bring your private investment money to the table deals, considering working with me, Joe Fairless. Simply complete this form to contact me directly!

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4 Legal Ways to Get Paid Raising Capital for Apartment Deals

 

A question I receive all the time is how can I make money from connecting syndicators with high net worth individuals? Unfortunately, it is not as simple as going out into the market and just doing it. There are rules and regulations around the money-raising business, and the main issue is making sure you aren’t performing broker dealer activities. If you are doing so without the proper certification, you are breaking the law.

 

Amy Wan, a crowdfunding lawyer who was named one of 10 women to watch in the legal technology industry by the American Bar Association Journal, is an expert on the rules that regulate the money raising industry. In our recent conversation, she provided four ways you can legally raise money without being a broker or a dealer.

 

Disclaimer: The purpose of this blog is educational purposes only. This is not legal advice. Consult with an attorney before taking any action!

 

What is a Broker Dealer?

 

There are four things that regulators look at when determining whether someone is engaging in unlicensed broker activities. Amy said those four things are:

 

  • “Are they taking transaction-based compensation? Transaction-based compensation is basically payments based on the transaction amount – how much money they’re bringing to the table. [For example], commissions, straight up commissions – that’s definitely transaction-based compensation.”
  • “Are they soliciting or going out and trying to find potential investors?”
  • “Is that person providing advice or engaging in negotiations? Are they helping to structure this deal in any way?”
  • “Do they have previous securities deals experience or history of disciplinary action?”

 

If you are involved in the activities outlined above, you are engaging in broker dealer activities.

 

Assuming you want to raise money without getting your broker dealer’s license, here are four options to pursue.

 

#1 – Become the Issuer

 

As a broker dealer, by definition you are selling securities to other people. So one option is to sell securities to yourself by becoming a part of the issuer. Amy said, “If you become part of the issuer, and what that means is you’re not just raising money, you need to be doing other things that area a little bit more day-to-day. But if you are part of the management or the GP or whatever it is who’s the active sponsor, then suddenly you’re not selling securities for others, you’re selling securities for yourself.”

 

The key here, and to most of the other options I will outline below, is to perform additional duties on top of raising the money. Amy said, for example, “maybe the guy helps them set up their bank account. Maybe he advises them on what strategies they should use for student housing, or any other area that maybe he can contribute. Maybe he’s helping out with property management, or helping with monthly distributions. Something that’s not purely just the raising capital. If he is involved actively in some of the day-to-day AND he’s raising capital, suddenly we’re not raising money for other people. We’re raising for the money for ourselves and that’s okay.”

 

Related: 6 Creative Ways to Break Into Multifamily Syndication

 

#2 – Give Class B Interest

 

Your second option is similar to the first, but instead of being a part of the issuer or management, you’re a part of a separate entity. The syndication can be structured with two classes of ownership interests. One is class A, which is for the investors, and another is class B, which goes to you.

 

When following this strategy, Amy said, “instead of them being a part of management, they’re not actually a part of the owner or the issuer anymore. They are a separate entity. You are giving them some of the class B shares, even though they’re not actually part of the management.”

 

However, just like option #1, you want to perform additional duties on top of raising money, and the compensation cannot be based on how much money was raised. “If you give a guy maybe 5% of whatever the class B interest is, if you make it not transactional-based compensation – maybe he gets 5% regardless of whether he brings in a million dollars or a hundred thousand – that starts looking a lot less like being a broker dealer,” Amy explained.
“And again, just as with the last example, even if they’re not a part of the management, it’d be nice if they could provide some sort of additional service. Maybe it’s them personally guaranteeing the loan. So even if they’re not bringing capital, they’re helping you get capital from the bank because they’ve signed the loan documents.”

 

#3 – Charge a Finder’s Fee

 

For a more creative option, you can charge a finder’s fee. However, just like the previous two options, you need to be careful to not tie the fee to the amount of money raised so it’s not transactional-based compensation. It should be a flat fee.

 

You also need to be careful when soliciting investors, which applies to all four options. Amy said, “when we’re soliciting investors, what we don’t want to do is to pre-screen or to recommend an investment or anything of the sort. But if it’s a mere e-mail introduction to someone who’s just interested in learning about multifamily apartments generally, and the person happens to know that this guy also happens to be interested in investing in real estate, that on its face is okay.”

 

When doing investor outreach, you don’t want to say something like, “Hey, Joe has this amazing 250-unit apartment complex that he’s raising five million dollars for. You should take a look at this.” You want to do soft introductions and nothing more.

 

#4 – Become a Consultant

 

The last option that Amy sees a lot is to negotiate with the issuer to become their consultant. And again (sounding like a broken record), the compensation structure cannot be based on the amount of money raised.

 

As a consultant, Amy said, “they’ll sign a consulting agreement. The consultant has to do a number of things. One of them could be going out and helping to raise capital or make those introductions. But it has to be that this consulting agreement is not merely raising. What we’re paying the consultant is not based on how much capital this person brings in, and as is the general theme here, they should have some sort of other job too.”

 

Conclusion

 

In order to make money by raising capital for apartment deals, you must avoid performing broker dealer duties. Your four options are:

 

  • Become part of the issuer
  • Give class B interest
  • Charge a finder’s fee
  • Become a consultant

 

Finally, before doing anything, run your plan by an attorney. Amy offered to provide advice or connect you with an attorney. You can find her at www.bootstraplegal.com.

 

Related: 4 Skillsets Needed Prior to Raising Private Money for Apartment Deals

 

 

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If you have any comments or questions, leave a comment below.

 

 

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Why You’re Not Receiving a Response When Messaging a Big-Time Investor

 

If you want to meet with an experienced, big-time investor, simply sending them a message on BiggerPockets or an email, for example, and inviting them out to lunch, coffee, or a phone call isn’t the best approach.

But why?

That approach might work for real estate brokers or newer investors because offering to grab a coffee with them is fulfilling a need. If the real estate broker is interested in gaining you as a client, they can accomplish that by accepting your invitation. For the newer investor, every interaction they have with a fellow real estate professional can lead to an opportunity, no matter how small, that will have a significant effect on their business. And I am sure they would both appreciate the free coffee or lunch.

However, if you want to get face-time with a more seasoned investor, don’t expect to do so without offering something more in return. Of course, there are exceptions, but typically they don’t need someone paying for their coffee. And if the purpose of the meeting is for you to pick their brain, they really won’t be benefiting from that either. Also, the more successful an investor is and the larger their portfolio, the more coffee, and lunch invitations they are receiving. Maybe you catch them at the right time and they accept your invitation, but most likely, they will decline because they have much more important things to do with their time. Therefore, you will need to approach them at a different angle.

Chris Tracy, who has been active in the world of real estate for five years, ran into this problem. He was ready to make the jump into the big leagues (from small residential to large multifamily investing), which required connecting with big-time investors. In our recent conversation, he explained the best way to stand out from the crowd of coffee/lunch invitations and to link up with veteran investors.

When reaching out to experienced investors, Chris says, ask yourself, “what are their needs?” Again, if you ask a big-time investor out to coffee to pick their brain, are you fulfilling one of their needs? The answer is no.

“I see a lot of these people on BiggerPockets,” Chris said, and “you always see that comment in the forum where people would say, ‘Hey, I need a mentor. I’d love to meet up and have coffee.’ Well, I’ve got news for you. The guy that owns a huge portfolio [doesn’t] have time in [their] day to go out and have coffee with all kinds of random people that want to mentor them. [They] don’t have time for that.”

Instead, when sending a message, focus on adding value. As an analogy, Chris said, “If you’re trying to learn how to play basketball and you want LeBron James to teach you how to play basketball, learn what LeBron James needs.” The same applies to real estate investors. Chris said to learn “what the needs are of the person and bring value to them, and say, ‘Hey, do you need anyone to help you underwrite deals? Do you need anyone to help you make phone calls? I’ll bring you deals. What do you need?’ Not just, ‘Hey, can we do lunch?’…That would be much more attractive and appetizing, and you’d have the better success…if you can just focus on bringing value.”

If you want to really stand out, instead of asking “What are your needs?” in your message, do some research, anticipate their needs, and proactively add value without even asking them what their needs are. For example, I had someone reach out to me recently who researched my background, discovered that I was looking for apartments in the Dallas area, and offered to not only find me deals but to conduct the on-the-ground due diligence as well.

Even if your offer isn’t what they are looking for, who cares! Most likely, no one has done that for them, at least not recently, and you’ll stand out regardless. You’ll definitely receive a response, at which point you can discover (or they will disclose) a need they have, you can fulfill that need, and start to build a relationship.

Conclusion

 

When reaching out to experienced, big-time real estate investors, don’t invite them to coffee or lunch to pick their brains. You will typically get rejected or not receive a response. Instead, ask them what their needs are.

 

To increase your chances of a response even more, proactively address their needs by researching their background, and when initially reaching out, either offer to fulfill that need, or even better, have already done the work to fulfill that need.

 

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The 4-Pronged Test to Raise Money Legally and Avoid Fines, Lawsuits, and Jail Time

Have you ever thought about raising money from private investors and buying large multifamily buildings? If so, it’s important to know if you must adhere to the SEC guidelines. If you fail to do so, you will be susceptible to fines, lawsuits, and maybe even jail time.

 

In fact, the SEC’s main revenue stream comes from pursuing syndicators who break the “rules.”

 

In a recent conversation with Jillian Sidoti, an attorney who’s an expert on money raising techniques for real estate investors, said the SEC “runs on fines. That’s how they make money. That’s how they justify their existence, by generating revenue through fines. They’re looking for people who are not following the rules.”

 

Luckily, she told us all about the Howey Test and how investors may use it to avoid issues with the SEC.

Sticking to the Rules

Fines from the SEC can be problematic, but Jillian said the larger threat, in regards to breaking SEC guidelines, are your investors. “If you don’t do right by your investors, that not doing right by your investors [and] not following the law in the first place is going to be exhibit A against you in the trial against you when your investors come to see you [in court],” she said. “It could just be you having a falling out with an investor, or an investor needs their money back in the middle of the project. How are they going to get it back if you’re not very willing to give it to them [or you can’t give it to them]? They’re going to sue you and they’re going to use all of this evidence against you in order to get their money back.”

 

How can you avoid the wrath of both your investors and the SEC? It’s fairly simple: Don’t make the biggest legal mistake Jillian comes across – not understanding the difference between a security and a joint venture. And there is a lot of misinformation out there.

 

“I often hear people say to me, ‘Well, if I just use a joint venture agreement or call it a joint venture, then that’s not securities and I’m in the clear,’” Jillian said. “I’ve sat in a seminar where people say, ‘If you just use a joint venture agreement then you don’t have to worry about any of these securities laws and you can do whatever you want,’ and that is simply not true.”

 

Raising money for a deal and believing that securities laws do not apply to you (because you think it’s a joint venture) can land you in a lot of legal trouble down the road. It is not worth pursuing the short-term benefits of a joint venture.

Applying the 4 Prong Test

How to you know if securities laws apply to you? Jillian provided a simple 4 prong test, commonly known as the Howey Test. If these “prongs” apply to your situation, then you must adhere to SEC securities laws, which means it would highly benefit you to find a good securities attorney like Jillian.

 

Here is the 4-prong Howey test to differentiate between a security and a joint venture:

  • Investment of Money: this will be a given since investors are giving you money to invest in a deal
  • Expectation of Profit: of course, your investors expect to make money, which is why they are investing with you, so this will apply to your situation
  • More than One Investor (i.e. common enterprise): This doesn’t mean “do you have one investor?” If you have only one investor period, you and that investor form the common enterprise. Again this will apply to your situation
  • Through the Efforts of a Promoter: This is the “prong” that mainly differentiates a security from a joint venture. If you doing all the work and your investor or investors are passive, it qualifies as a security.

If your situation meets these four-prongs, it is an investment contract and you are required to follow SEC guidelines. According to the SEC, the definition of an investment contract is “an investment of money (#1) in a common enterprise (#3), with an expectation of profits (#2) based solely on the efforts of the promoter (#4).”

For more on the differences between a security and joint venture, read Joint Ventures or Securities – What’s the Difference? And of course, consult with a securities attorney.

Conclusion

When raising money for deals, in order to avoid fines from the SEC or losing potential lawsuits from your investors, you must understand whether or not your situation is regulated by the SEC. This is determined by the 4-pronged Howey Test:

  • Is there an investment of money?
  • Is there an expectation of profit?
  • Is there more than one investor?
  • Is everything done through the efforts of a promoter?

If the answer is “yes” to these four questions, you are regulated by the SEC and must adhere to their rules.

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4 Skillsets Needed Prior to Raising Private Money for Apartment Deals

Want to become a multifamily syndicator but lack the commercial real estate experience? No problem!

 

When I bought my first apartment, a 168-unit building in Cincinnati, my previous real estate experience only included four single family rentals.

 

How did I make the jump from four units to 168? I cultivated the following four skillsets.

 

#1 – Trustworthiness

 

First and foremost, people need to already recognize you as a trustworthy person. If you can’t look yourself in the mirror and say “yeah of course people find me trustworthy,” then forget about raising private money. Why would someone entrust you will thousands of dollars of their own capital if you have a history of untrustworthiness?

 

#2 – Proven Track Record

 

Assuming you are already trustworthy, you will need a proven track record. However, this track record doesn’t necessarily have to be real estate related. Having prior real estate experience, whether it’s wholesaling, fix-and-flipping, etc., is a plus but not a requirement. If you don’t have real estate experience, then you must have a proven track record in a professional career.

 

Now, if you just graduated college, have no real estate experience, and have been working in a corporate job for a few years, you will not be set up for success. Examples of a proven track record in a professional career would be if you had entrepreneurial experiences in college, you bought and sold a company, you started your own company, or you’ve held high-level responsibilities at a corporate job. For example, I was a VP of a New York marketing company prior to raising money for my first syndication deal.

 

Experiences like that would be compelling to private money investors. It shows that you have the business foundation required to handle managing other people’s money.

 

Ideally, you would have a combination of the two, but either or would suffice.

 

#3 – Resourcefulness

 

Another skillset is being incredibly resourceful.

 

I believe I am the most resourceful people on the face of this earth. I will find a way to make things happen. I will talk to enough people. I will do whatever it takes. That is a core, guiding belief of mine. And let me tell you, making the leap from single-family residences to a 168-unit required a lot of resourcefulness.

 

I believe we have to be resourceful as multifamily syndicators because challenges will come up and there’s not necessarily a roadmap for how to complete a deal from start to finish. Therefore, resourcefulness is a must.

 

#4 – Understand the Numbers and Terms

 

Finally, you’ve got to know how to run the numbers and understand how to analyze deals. You don’t need to have 10 or more years of experience analyzing deals because you can partner with someone, like I did, who has that experience. However, you still need to have a basic understanding of how the numbers work and of the multifamily lingo. The last thing you want to have happen is speak with a private money investor who asks drops terms like gross rent multipliers or internal rate of returns and you have no clue what they is talking about.

 

 

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4 Principles to Source Capital from High Net-Worth Individuals and Find Off-Market Deals

In February 2017, we hosted the first annual Best Ever Conference in Denver, CO. To kick off the conference, I gave a keynote address (to watch my address, click here).

 

The conference was unique in that I asked each attendee to submit the answer to the following question: What are current obstacles you are trying to overcome in your real estate business?Rather than create a conference the way I wanted to, I created it around the personal obstacles of each individual attendee.

 

After read over one hundred submissions, the common thread I found between everyone’s obstacle was two-fold: raising investment capital and finding more off-market real estate deals.

 

In keeping with the personalized theme of the conference, I formed my keynote address so that at its conclusion, all attendees would have practical takeaways for how to raise money and find off-market real estate deals.

 

Here are the four tactics I provided:

1 – Build Your Network

When I interviewed Robert Kiyosaki (listen to the full interview here), he said, “the richest people in the world build networks. Everyone else looks for work.”

 

The most important thing that we can do to play the long game in real estate investing is to build a network. I have found that the best way to do this (and what I attribute to the majority of my success) is to create a thought leadership platform.

 

A thought leadership platform can come to life in one of four ways: 1) a podcast, 2) a YouTube channel, 3) a blog, and 4) an in-person event.

 

The keys to having a successful thought leadership platform or network are:

 

Consistency – For example, I host the world’s longest running daily real estate investing podcast.

 

Identify what your unique angle will be – I have two clients with military background. One was in the Army and the other was in the Air Force. They created a lease-option business and YouTube channel called “Joint Ops.” Due to launching this brand, they now raise over $200,000 a month in private money.

 

Start within Your Sphere of Influence – When you are starting a thought leadership platform, you are not going to get instant results from people who don’t know you. However, your sphere of influence that already exists will begin to know what you are doing and you will start to become the thought leaders within that sphere. It takes a lot of time and consistency to get strangers into your sphere, but you’ll get instantaneous results from people who already know you (i.e. friends, family, work colleagues, etc.). That’s how I raised $1 million for my first deal.

 

Tie into a Large Distribution Channel – Don’t recreate the wheel. Leverage an existing channel with a large network. For example, with a YouTube channel, you have access to millions of potential viewers. With a podcast, you can tap into the billions of ears on iTunes. With a blog, post to your own website, but also to BiggerPockets, LinkedIn, Medium.com, and social media to begin to create a following. With a meet-up, it’s a little trickier. However, someone in my network moved to Atlanta, partnered up with an existing meet-up host, and had 90 investors at his first meet-up!

2 – Ask Better Questions

Whenever I have a meeting with a client, I always ask them to tell me what is the best thing that’s happened to them since the last time we spoke. For some of my newer clients, their response will be, “oh, not that bad.” While that may seem innocuous, when we dissect it, what are they saying? They aren’t saying things are good, that’s for sure.

 

We have to be very careful with our language. Even though they are saying they aren’t bad, they are still using the word bad, a negative word. As far as I’m concerned, this puts us in the wrong mindset. The same applies to the questions we ask. When I was reading through the obstacles of the attendees of the conference, I read things like, “What happens if I raise money, but I don’t find a deal?” or “What happens if a deal doesn’t work out?” or “What happens if I can’t raise the money.” Instead, we have to ask better questions that don’t assume we are going to fail. Re-frame the question to “how do people who are great at raising investment capital and finding deals successful?” Model them, stick with them, and grow together.

3 – Create Opportunities

To find deals in a hot market, we have to be creative and create our own opportunities. Read here for an example of how I was able to find an off-market real estate deal while touring an on-market deal and added both to my portfolio.

4 – Partner Up

When I was a solo investor, I purchase four single-family homes and one large apartment building, and then my business remained stagnant for a few years. Once I partnered up with someone who complements my strengths and helps me with my weakness, my growth skyrocketed; I was able to added over $100 million worth of properties to my portfolio.

 

To find the perfect partner like I did, it’s important to know yourself. It takes a little bit of time and experience, but after completing a few deals, look in the mirror and ask yourself, “What am I really good at and what am I really bad at?”

 

Build a team around those answers and once you do that, your business is going to flourish.

 

Personally, after my first syndication deal, I realized I was great at raising investment capital and marketing, but I was terrible at underwriting and asset management. My partner has an institutional background, so he is phenomenal at the underwriting and asset management. Therefore, we complemented each other perfectly, which is why we’ve been able to scale so quickly.

Conclusion

In order to raise more money and find more off-market real estate deals, you must:

 

  • Build your network through a thought leadership platform
  • Re-frame your mind and ask better questions
  • Create opportunities rather than wait for opportunities
  • Partner up with someone who complements your strengths and weaknesses
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5 Creative Ways to Raise Private Money with a 506(c) Offering

Back in 2015, I had Mark Mascia on the podcast to discuss how to best qualify a development deal (How a Billion Dollar Developer Qualifies a Deal). Since then, Mark has transitioned from being a billion dollar developer to a half a million-dollar syndicator. He currently controls over half a million dollars in retail and medical office space.

 

When raising money for his deals, he elected to use the 506(c) offerings over the 506(b) offering. The main difference is with 506(c), Mark is able to publicly advertise for accredited investors for his deals. Here is a video where I interviewed a securities law expert on the differences between 506(b) and 506(c).

 

Mark said, “the first and foremost reason that we like [506(c) offerings] is because we can talk about what we’re doing actively, and not have to keep everything a secret or know you personally before we talk about it.” Since he is able to publicly advertise for his deals, he doesn’t need to have a personal relationship with his investors, which in turn, enables him to utilize more creative techniques for finding investors.

 

When Mark first began raising money, his capital came from a single source – family offices, which are offices that manage the wealth for high net-worth families. However, he realized, “we just don’t want to have any sort of single source of capital, just like we don’t want to have a single tenant or any single property that can sort of wipe out our wholes business.”

 

Now, Mark focuses on not only diversifying his investments, but also his passive investors. He said, “every deal we do, we have the ability to raise all of the funds from these large, big-pocketed family offices, but we specifically chose not to (for two reasons). One, so that we can keep relationships with our friends and family and other investors who have been with us for a long-time, but two, to meet new investors.”

 

With the 506(c) offering, Mark is able to advertise his deals, which is the main source of his new investors. In our conversation on my podcast, he provided the 5 advertising methods he uses in order to find these new investors for his deals.

 

1 – Crowdfunding

 

Mark’s first method for obtaining new investors is through crowdfunding (click here for a crash course in crowdfunding). He said, “Every deal we do, we do a portion of it crowd funded, which is really nothing more than just advertising online through one of these third-party platforms for new investors. So it’s straight general solicitation out there, advertising on the website, and they advertise on other platforms. But they’re aggregating individuals who are interested in investing in real estate and putting our deal in front of those eyeballs. So every deal we do, we reserve a least a few hundred thousand dollars for that specific purpose.”

 

For a deal Mark is currently working on, he is using the platform CrowdStreet. However, he mentioned he’s used just about ever crowdfunding platform out there and doesn’t have a specific favorite.

 

The benefit of crowdfunding is that Mark finds investors that he wouldn’t have been able to find otherwise. “These are people that I would otherwise have never met in my life that are interested in investing with us, and some of them have already invested with us. It’s a great opportunity to grow your network of individuals that either might be interested or are definitely interested in investing.”

 

2 – Facebook

 

For a recent project, Mark opened up the deal to investors on Facebook for the first time. He said he’s trying out Facebook because, “We’ve heard in the past a lot of great reviews from friends about how they acquired investors that way because you can be super targeted. We know very clearly that 90% of our investors are 40 years and older, live all over the country but mainly in population centers of 100,000 people or more.” Educational attainment (college educated) and professionals (doctors, lawyers, executives, and small business owners) are also target criteria.

 

Related: The 4 Keys to Building Relationships on Social Media

 

3 – Newspapers

 

Mark also puts advertisements in the local newspaper. “We are also trying old school newspaper advertising because our investor base tends to be a little bit older. In some cases, we have investors 70, 80, 90 years old and newspaper still happens to be a very relevant source for those people.”

 

For a recent deal in Spartanburg, South Carolina, he took out ads in local papers in North and South Carolina. “[I’ve taken ads out in] markets that are very close to these areas. Charlotte’s an hour away. Greenville is about 45 minutes away. Charleston. Those types of things because people tend to like investing locally, even though long-term I think that’s a bad strategy, it’s a great gateway if they can drive by the property and see it.”

 

4 – Webinars

 

In addition to crowdfunding, Facebook, and newspaper ads, Mark also does webinars. In adherence to the “be everywhere,” “blanket/carpet” marketing strategy, he wants to advertise on as many platforms as possible.

 

Mark said, “The webinar was helpful because we get one-on-one questions. We get a bunch of people and interest built around that specific concept of hosting a webinar and you can record it and then send it to others, so it gives you sort of a platform and another contact point to reach out to people.”

 

5 – Referrals

 

Mark’s final advertising strategy is good, old-fashioned referrals. He said, “The referral [is] probably in everyone’s experience has been why you start with your friends and family, because they know you… If you perform for them, they will refer you to their friends and family, and so on and so on. That’s typically been the best source for us overall.”

 

When finding new investors through referrals, the most effective method is through social proof. Mark said, “What I’ll try to do is people that do know each other or people that don’t know each other, some of the family offices that didn’t know each other, I introduced them to each other. Now they know each other, so when I say, ‘XYZ family office is investing. Don’t you guys want to invest as well?’ they go ‘Oh yeah, of course. If they’re invested, we’ll do it too.’ So there’s a little bit of trying to get people in the same room or same social network of some sort, even if it’s just because I introduced them, so that there’s that social proof aspect where people feel obligated or inclined to invest because of someone else.”

 

Related: 4 Non-Obvious Ways to Raise Private Money for Your Deals

 

Conclusion

 

Raising money using the 506(c) offering allows you to publicly advertise for investors. The top 5 advertising methods Mark uses to raising money for his deals are:

 

  1. Crowdfunding
  2. Facebook
  3. Local newspapers
  4. Webinars
  5. Referrals

 

Want to learn more about passively investing in apartment syndications? Visit the Best Ever Passive Investor Resources page, the only comprehensive resource available to passive investor.

 

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

 

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7-Steps to Presenting a New Apartment Deal to Your Private Investors

Last week, my partner and I presented a new multifamily deal to our private investors. Our current approach is to set-up a 60-minute phone conference using the free software at www.freeconferencecall.com.

For those who are currently raising money for deals, or expect/desire to raise money for deals in the future, presenting a deal to investors can be a stressful experience, especially if it’s your first time. In order to mitigate the stress, preparation is a must. That being said, I wanted to share how I prepare and structure my presentations for investors.

 

1 – Get Your Mind Right

First, you have to get in the right frame of mind. What I mean by that is you must answer the question, “Why am I presenting this opportunity to investors?” I write the answer to this question at the top of the Word Document outline I use as a guide when presenting a deal.

At the top of the document, in bold letters, reads, “I am here to serve. I am here to help my investors retire, do what they want with their money, and ultimately do what they want with their time. When they get the returns we’re projecting, then they’re going to be able to spend their time the way they want to spend it.

If I accomplish the goal of this statement, it is a win-win for both my business and for my investors. A personal belief I hold is when people spend time how they want to spend it, they will naturally gravitate towards doing more altruistic things. I’m not just helping my investors make money, but I am helping them have the financial freedom to do what they want with their time, which in turn, will result in more altruism and philanthropy in the world.

So, starting out with the right mindset, as well as coming from the heart and knowing that you’re there to serve the investors is the foundation for a successful conference call.

 

2 – What’s Your Main Focus?

In addition to getting myself in the “service” mindset, I also remind myself what my main point of focus is – capital preservation.

This became my main point of focus in part due to an interesting psychological concept called loss aversion. Loss aversion refers to people’s preference to avoiding losses relative to acquiring an equivalent gain. In other words, people’s negative reaction to losing $5 is greater than the positive reaction of gaining $5. Through personal investment experience and after interviewing 1000 real estate professionals, I have anecdotal evidence to support this concept as well.

Assuming you are conservatively underwriting a deal (which you should) then capital preservation needs to be sprinkled into the discussion with investors.

 

3 – Introduction

Now that my mindset is right and I’m focused on capital preservation, I’m ready to start the actual conference call. I start every call with an introduction, which is a simple summary of my background.

Additionally, I provide my email address and ask the investors to send any and all questions to me so that my business partner and I can answer them during the Q&A session (see step 6).

4 – Deal, Market, and Team

After I’ve provided my bio, the call is structured into three categories.

  • The Deal Details
  • The Market Details
  • The Team Details

 

I’ve already determined the main highlights of the deal, so before going into granular details on the three categories, I provide a high level overview of the deal. The overview explains the main reasons why I like the deal. I do this because I want to focus on and continue to reiterate these main points throughout the call. I don’t want to discuss these three data points and have everyone’s mind swimming in numbers. I want to make sure that the points I want to make about the deal are clearly and consistently communicated.

For the investor call I had last week, the two main points for that deal were exceptional location and a proven business model with a proven team. I led off with that, and that was the theme throughout each of the three categories.

Next, I went into each of the three categories and explained the highlights of each.

When I say something like, “It’s an exceptional area,” I will follow it up with, “and here’s why,” versus just throwing out hyperbole. You always want to have stats to back up your claims, and if you want to take it to the next level, tell a story as well.

For example, the deal I presented to investors last week was in Fort Worth, Texas. I mentioned that it’s an exceptional location. The population is growing, and as a reference point, the U.S. Census Bureau named it the number one fastest growing city in the United States, with a 47% population growth from 2000 to 2015.

I could have left it there with that stat. However, I went on to explain why the population is growing. I mentioned job growth, job diversity, and gave some specific employers. This was the macro level overview for the market.

Then I went into the micro level for the submarket. I talked about the school district and the specific employers within a 3-5 mile radius.

Overall, it’s important to know what you’re talking about (obviously), but mention the numbers and the reason behind the numbers, rather than just stating statistics. Tell a story, and then make sure you are hitting the points you need to hit, which are the ones you’ve predetermined are the most important selling points or desirable attributes for the particular opportunity.

 

5 – Dive into More Details

I present steps 3 and 4, which takes about 15 minutes. Then my business partner talks for another 20 minutes. He explains the business model in more detail, the financing we are obtaining, etc.

 

6 – Q&A

Finally, the rest of the call is the Q&A session to answer the questions investors emailed me. I will reply to some of the emails while my business partner is speaking, but most of the questions are addressed at this point.

At the conclusion of the Q&A session, the conference call is completed.

 

7 – Send Recording to Investors

Since I record all conference calls, I will send out the link to the recording to all my investors. I do this because probably around 40% of the investors aren’t able to attend the call.

 

Conclusion

My conference calls with investors consist of 7 steps:

  • Get my mind right
  • Determine my main focus
  • Introduction
  • Three categories – deal, market, team
  • Dive into more details
  • Q&A
  • Send recording to investors

 

When you follow this 7-step formula, it makes for a very concise conversation and you’re able to have an effective call.

 

 

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That all helps a lot in ranking the show and would be greatly appreciated. And if you have any comments or questions, leave a comment below.

 

 

 

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My Four-Step Apartment Syndication Money-Raising Process

I was recently awarded another apartment deal. If you’re interested in learning more, check out the article I wrote about the main lesson I learned. However, prior to putting the property under contract, I already started the money-raising process.

In this post, I wanted to walk you through how I approach raising money from investors, the processes of which begins before I am awarded the deal.

Step #1 – Am I Capable of Raising X Amount of Dollars?

First and foremost, I make sure that I have the equity lined up before I get awarded the deal. That doesn’t necessarily mean that I know exactly who will be investing what amount. I just want to know that I have the capability of raising the amount of money required.
For example, for the deal I was recently awarded, I will have to raise between $7 million and $8 million. Based on experience with raising property investment money, I am confident that I will be able to hit that number. However, if the number were $25 million or $50 million, it would be a different story.

Step #2 – Who Will be the Investors?

Once I believe I have the capability to raise the required amount, I start to identify the specific investors that will bring the equity, at least conceptually. They don’t have to be the exact people who end up investing at closing because things usually change when you start speaking to investors. Some invest more, some invest less, and some don’t invest at all.
For this step in raising money from investors, I list out all the names of the investors whose goals are in alignment with this specific project – which I already know based on previous deals and/or investor conversations. Then, next to each name, I write down the amount of property investment money I believe they would bring to the table, which includes a low amount and high amount. That allows me to identify the number of investors I will likely need for each of my investment property opportunities.

For this step, I input all the information into an excel document entitled “Money Raising Tracker” that I created from scratch. If you are interested in using my tracker for your deals, email me at info@joefairless.com and be sure to mention “money raising tracker” in the subject line.

Step #3 – Create a One Page Deal Summary

Next, I create a one-page document with a high-level overview of the opportunity and send it out to the list of investors created in step #2. At this point in the process of raising money from investors, I may still not have been awarded the deal, while in other cases, I have. However, if I haven’t been awarded the deal, I would feel comfortable sending out the one-pager to investors anyways, as long as the contract is scheduled to be in place in a few days.
The reason why I create the one-page document and send it out to investors is because it let’s me get the opportunity in front of the investors while I work on completing step #4, which is…

Step #4 – Create a Detailed Marketing Package

Finally, I will create a marketing package that is more robust and detailed compared to the one-pager from step #3. It has everything from the projected returns to the market information to the business plan to the team and everything in-between.

This document usually takes about a week to a week and a half to prepare. While I am doing that, I don’t want to sit on my hands. That is why I send out the one-pager with the high-level overview of the opportunity so I can gauge the initial interest of my investors.

Bonus Step

One additional step I take on my deals is hiring a videographer who has a drone. They go to the property and use the drone to record videos, including shots of a birds-eye view, the units, the amenities, and close by retail. Then, we make a video compilation and send it to the investors. It really helps bring the project to life and make raising money from investors a bit easier.
Depending on how robust you want the video, the cost can be anywhere from $1,000 to $5,000. But it’s certainly worth it.

Conclusion

My four-step process of raising property investment money is:

  • Determining if I am capable of raising the required amount of money
  • Filling out my “Money Raising Tracker,” listing potential investors and the low and high amount they may invest
  • Creating a one-page document that provides a high-level overview of the opportunity
  • Creating a detailed marketing package

Finally, I will hire a drone videographer to create an investor video, which is a compilation of different shots of the property and surrounding areas.

 

Want to learn more about raising money from investors and building an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book.

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Thought Leadership

How to Raise $5M in ONE WEEK Through a Powerful Thought Leadership Platform

Kathy Fettke, who is the co-CEO of an investment club with over 24,000 members that helps people become “job-optional” through cash flowing real estate, is one of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

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In a conversation with Kathy all the way back in early 2015, she provided her Best Ever advice, which is a sneak preview of the information she will be presenting at the Best Ever Conference.

What was Kathy’s advice? She outlines all the advantages of creating a powerful thought leadership platform, including how she was able to raise $5 million in ONE WEEK!

Kathy’s Real Estate Background

 

According to Kathy, until about 10 years ago, she was a happy housewife. She used to be in the broadcasting industry, working in a newsroom for years. After marrying and having a child, chasing fires in the newsroom was no longer an alluring concept, she reports. Kathy made a choice to be a stay-at-home mom and life was great. But that all changed when her husband came home from work and said that the doctor told him that he had six months to live. The news shocked the couple and pushed them to make a few decisions about their life together. In the end, it was discovered that Kathy’s husband had been misdiagnosed.

Kathy faced a situation that is most people’s worst nightmare: how would she live without her husband? Since she no longer had a career, she also had to figure out how she would cover the bills and feed her family on her own.

At this point, all Kathy had was her podcast, “The Real Wealth Show.” Using this platform, she interviewed as many wealthy people possible. The goal was to see how they created their wealth because she needed to replicate that success. However, the podcast wasn’t making any money, and Kathy needed to monetize it immediately. To solve that problem, she started bringing on sponsors, most of whom were previous guests. It was around this time that Kathy found out that her husband had been misdiagnosed. That was excellent news, but that’s not the only good news. By then, Kathy’s podcast was gaining momentum, so she stuck to it!

“The Real Wealth Show” is a weekly podcast on all the different ways you can make money as a real estate investor. Each week, a different investor is featured as Kathy asks great questions on how they built their wealth. Every episode covers a different topic such as leverage, tax benefits, asset protection, inflation, how to buy right, triple net leases, credit repair, and more.

Over time, the podcast grew to the point that Kathy was able to turn it into her business, Real Wealth Network, which mimics the information found in her podcast. It offers information to help their members succeed by providing free content, including weekly blogs, newsletters, and webinars.

 

Best Ever Advice: Success Leaves Clues

 

Kathy’s Best Ever Advice is to “make sure that you have someone helping you that has done what you want to do. To many people take advice from people that just want to make commission or they have never done it before.” She continued by saying, “that was the problem in 2006 when so many people jumped into real estate without any experience or knowledge. They were getting advice from real estate agents, [who] are in it for the commission and most aren’t investors, or getting advice from neighbors, and it doesn’t work that way.” Many people who took this path ended up failing. Kathy believes this resulted in investors getting a bad name and being blamed for bringing down the housing market.

Advice in Action #1 – You don’t have to fall into these same traps. If you are going to buy an investment property, make sure you are getting advice from someone who is not going to make money off of you or, if they are, that there is an alignment of interest in the deal. Instead, work with someone who has successfully invested more than once; someone who can actually help you and look out for your best interests.

Kathy says this is the main reason she created her Real Wealth Network. She was desperate for financial information because she didn’t know how she was going to pay a $4,000 mortgage and take care of the kids if her husband were to die. Getting a job was out of the question because she didn’t want to be away from her children. Kathy wanted to understand how to invest properly, but couldn’t find anyone that had her best interest at heart. Therefore, instead of simply settling for bad advice, Real Wealth Network was born.

 

Putting Advice into Action

 

After Kathy’s show increased in popularity, and after she had spoken to countless self-made millionaires, it was time for her to get out there and take action herself. During a time where her local market – California – was overheated, Kathy and her husband refinanced their home and took the cash out to purchase five investment properties in Texas. Part of what Kathy had learned from interviewing millionaires is the importance of market timing. California was in a bubble while Texas was undervalued. Based on that information, Kathy decided that Texas was the better market in which to invest. Buy low and sell high is the name of the game. However, it wasn’t easy when it came to investing in an out-of-state market.

When they first went to Texas to meet with real estate agents, Kathy and her husband realized that they were being perceived as “California money.” Kathy said, “[the agents] were like sharks and were trying to sell us $400,000 to $500,000 properties in Texas. Terrible investments!” But Kathy continued by saying, “over time, we found the right people. The people who understood and owned 40, 50, 60 investment properties in the area [and] property managers who knew where the rental demand was.”

After successfully investing in Texas, Kathy set out to replicate her success in other markets. She and her husband went out to different emerging markets where they knew there was job and population growth. Then, they focused on building a team in each of those markets. Kathy and her husband met with more and more success.

As Kathy’s investment career was taking off, her listeners became interested in learning more about how she was able to purchase investment properties all across the nation. As a result, the Real Wealth Network, which recently eclipsed over 24,000 members, emerged.

The Real Wealth Network enabled Kathy to help educate even more investors on how to be successful and is a great network for referrals. It is such a good referral network that Kathy was able to leverage it to raise $5,000,000 for a deal in one week. The combination of her podcast, her business, and the network she created made people flock to her for advice and guidance. Kathy proved herself a trustworthy go-to person in the industry, which made people comfortable and trusting enough to send her a $100,000 check without even thinking twice!

Advice in Action #2 – Think having a platform like the Real Wealth Network would benefit your business? Yep, thought so. Start small by interviewing people for a blog, podcast or YouTube channel then grow from there over time. I’ve seen first-hand how having a platform can grow business exponentially. You’ll learn from people you interview and you’ll get additional opportunities through the network you’re spearheading.

 

 

Want to learn more about real estate thought leadership, as well as information on a wide range of other real estate niches? Attend the 1st Annual Best Ever Conference February 24-25 in Denver, CO. It’s the only real estate investing conference whose content and speakers are curated based on the expressed needs of the audience. Visit www.besteverconference.com to learn more!

 

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