JF1828: How An Investor Raised Over $1 Million For First Two Apartment Syndication Deals | Syndication School with Theo Hicks
Theo has walked us through the entire apartment syndication process in previous episodes. You can find all of those at SyndicationSchool.com. Now we will begin to discuss miscellaneous, tips and lessons that the team has learned over the years. We’ll share stories from Ashcroft Capital (Joe’s investment company with his business partner Frank Roessler), guests of The Best Ever Show, and Joe and Theo’s own experience. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.
Each week we air two podcast episodes that are typically part of a larger podcast series – we also release these on YouTube as well – that’s focused on a specific aspect of the apartment syndication investment strategy, and for the majority of these series we offer some sort of free resource, document, spreadsheet, presentation template, something for you to download for free, that accompanies the series or episode. All of these free documents, as well as the free Syndication School series can be found at SyndicationSchool.com.
This episode is going to be a standalone episode. Moving forward we’ll most likely be doing mostly standalone episodes, because in the first 21 series we went through the entire syndication process from start to finish, and now we’re going to go back over certain aspects of that process in more detail, and just extra tips and strategies and case studies that will help you on your syndication journey.
Today we’re gonna be talking about a specific case study on raising money. This episode is entitled “How an investor raised over one million dollars for their first two apartment syndication deals.” Now, most people who are starting out will likely put in a ton of effort into their first deal and maybe raise a couple hundred thousand dollars, or 500k; this particular individual raised over a million dollars for their first deal. And not only did they do it for their first deal, but they did it for their second deal as well, which equates to about a 3 to 3.5 million dollar deal both times… Because as you know, you typically need to raise about 30% to 35% of the total project cost in order to close on the deal.
So it is possible to raise over a million dollars for your first deal, as well as your second deal, as long as you have that education and experience and you tap into your natural network, which is what this particular investor did.
So here are the three things this investor did that enabled him to raise over a million dollars for, again, not only his first deal, but also his second deal as well. All three of these strategies were in some form or fashion him tapping into his current net worth, so the people he already knew, and leveraging skills and experiences that he already had. The first place that he went to to raise this capital was his personal network.
Again, I’m gonna explain this from his perspective, and then we’re gonna take a step back and explain how this is relevant to you. This individual’s personal network included his family, his friends and his work colleagues. These were individuals who already knew who he was on a personal level, which meant that they already knew about his real estate background and real estate education.
Before raising money for these two deals, before raising that million dollar plus number, this individual’s previous real estate experience included over five years of purchasing single-family homes, so he was a single-family investor for about 5+ years, and then also in a previous corporate role he was responsible for managing a 2.5 billion dollar investment portfolio, and was responsible for raising over one billion dollars in funds for acquisitions. So obviously knowing that this individual had five years of investing experience on the personal side, as well as having a previous career where he was also responsible for investing, in this case 2.5 billion dollars worth of properties, his personal network knew that he was a successful real estate entrepreneur.
Within this particular personal network, the two main money-raising avenues were his past business associates, so people that he knew from work, and then actually people that were within his wife’s network.
Before we get into that, let me stop and talk about this first aspect… As you know from one of our earliest Syndication School series, the two things that you need to do before you’re ready to become an apartment syndicator is you need to obviously get the education, which you’re doing through Syndication School, but also you need to have experience. We broke that experience down into two categories, which was business experience or real estate experience. So you need to have past experience that you can leverage, while explaining to potential investors why they should trust you with their money.
So if you’ve never held a job before and you’ve never invested in real estate before, why would someone trust you with their capital? When they ask you “What previous experience do you have that should make me believe you’re capable of executing this business plan?” and you can’t say — in this person’s example, “Well, for the past five years I’ve been investing in single-family residential myself, and here’s how many deals I did, here’s the returns I received using my own capital, here’s the roles that I played, here’s the things that I learned while doing that… But also, I have experience managing a massive real estate portfolio. In fact, in my previous role I managed a portfolio of over 2.5 billion dollars, and raised over one billion dollars in funds for acquisitions. Here are the types of deals that I did, here is my specific roles in that management and in that capital raising.”
That sounds a lot better than saying “Well, I listened to a lot of podcasts, I read a lot of books in the process, and I’m looking forward to putting that education into practice.” You need that, but you also need to have that experience as well. The reason why is because, as I mentioned, the number one reason why people invest with you is because they trust you, and they’re going to trust you 1) if they know you on a personal level, of course, but 2) if they know that you’re gonna be able to preserve and grow their money, and they’re gonna know that you can preserve and grow their money if you’ve done that in the past with either your money or someone else’s money, or had some sort of experience managing a project that involved actual money.
In doing so, once you’re talking to an investor, you can leverage this experience and explain to them how you’re gonna be able to use those skills to transition into raising money for deals.
The next thing, as I was mentioning, is that the two avenues this individual used to raise capital through their personal network was people from work, and his wife’s network. His wife’s network was a natural path, because she knew many people that were already interested in real estate, and had cash readily available, and she had also built trusting relationships with these individuals.
Another really powerful way to raise capital is to think of not only the people that you know, but the people that know the people that you know. People that are multiple degrees of separation away from you. So who’s someone that you have a strong relationship with, that you could in a sense partner up with so that you can tap into their personal network of high net worth individuals?
A perfect example of this would be if you were someone who had very strong operational experience; you had a lot of experience underwriting deals, doing due diligence on deals, maybe even asset-managing deals, but you don’t know many people with high net worths, and you don’t have any experience raising capital… So you cover most of the important aspects of the operational side, but you don’t know how to get the actual capital to get to the point where you can do underwriting, do due diligence, and asset-manage the deal… So a good solution to that would be to partner up with someone who focuses specifically on the investor relations side, and actually raising the capital. So we’ve got one person who’s responsible for the day-to-day operations of the deal, another person is out there generating interest for investing in these deals.
In this case, this individual didn’t have to go too far, because his partner, in a sense, lived with him. It was his wife, and his wife had a network of high net worth individuals that he was in a sense able to tap into in order to raise money. So he had the experience, she had the network, they came together to raise over 2 million dollars for those two deals.
The second avenue was work. This individual had a past business associate he used to work with in the high tech sector (so this was a tech guy). This person was actually this individual’s biggest investor. So another avenue is to not only tap into someone one or two degrees of separation away from you, that knows a lot of high net worth individuals, but think of people that you already know who are working a high-paying W-2 job, that know you, maybe have an idea about your real estate investing experience, and ask them if they’re interested in an opportunity, if it were to meet these certain criteria.
In summary, find someone who you know has a network of high net worth individuals, as well as focus on people that you already know from either your previous jobs, or friends or family members that you have that have high-paying jobs. So that’s number one, personal network.
The second way that this individual was able to raise over a million dollars for deal one and deal two was Bigger Pockets. Social media outlets like Bigger Pockets, that specifically focus on real estate education, or just entrepreneurship in general, tend to attract people who are looking for investment opportunities. Another example would be a place like LinkedIn. This is where the type of offering you plan on doing comes into play; if you plan on doing a 506(b) security, then you’re not able to explicitly advertise for money, and you need to have a pre-existing substantial relationship with your investors. You can’t post on Bigger Pockets, or you can’t post on LinkedIn, saying “Hey, I’ve got this great deal. Do you wanna invest?” Or “Hey, I’m a syndicator and I’m looking for investors.” You’re not allowed to do that. Whereas if you’re doing a 506(c), that is something that you are in theory able to do. But again, make sure you’re checking with your securities attorney on all of these, to make sure you’re generating investor interest the correct way, and legally.
For this individual, they did a 506(b), so they were not able to go on Bigger Pockets, or able to go on LinkedIn and just post their deals. Instead, what this individual did was he portrayed the same message by posting valuable content on Bigger Pockets, and by creating a strong biography page. A very powerful strategy to generate interest in you and your business is to create a Bigger Pockets Pro account, which allows you to put links in your signature, and then make a bio that explains exactly what you do. Don’t say “Hey, I’m looking for investors”, say “Hey, I’m an apartment syndicator. I raise money from accredited passive investors, or people who are interested in getting into real estate larger projects, but don’t have the time or skills to do it themselves, and we use that capital to buy deals and share in the profits.”
Then you can put a link to your website or a link to your LinkedIn page or wherever you want to send people who are interested in learning more about you… And then you just post content on Bigger Pockets. You answer questions in forums, you repurpose your thought leadership content and post it to the blogs. You’re just constantly putting out valuable educational resources. Ideally, you are posting information that is relevant to people that you want to reach out to you, which are accredited passive investors. So you can write about things that will help people make good passive investment decisions. And in doing so, whenever you post your content to the forums, or respond to someone else, or post a blog post, then whoever comes across that will see you obviously being engaging and answering people’s questions, but also they will see the link in your signature, or they will click on your profile to learn more about you.
Obviously, not every single person who comes across your profile is gonna click on it, but it’s all about getting as many eyeballs on your profile as possible, and sending those people to your website, and then making sure of course you have a website that directs them to any sort of a lead capture form that you have, or any sort of call-to-action that you have. So that’s number two, Bigger Pockets, or similar social media sites; you can do the same thing on LinkedIn – you can post your blogs there, and make sure that you have strong keywords in your bio, like “passive investing, accredited investing, apartment investing, apartment syndicator”, so that anyone who’s out there searching for passive investment opportunities, accredited investment opportunities, will be able to find your profile easily. Then of course, having a link to your website, so that they can go to your website.
The third way that this investor was able to raise over one million dollars for deal one and one million dollars for deal two were local multifamily meetups. So he’s got the virtual realm covered via Bigger Pockets and LinkedIn, and then he’s got the real world covered by attending these local multifamily meetups.
This individual expected to be a lot more successful at raising money at these meetups than he actually was. Meetups are going to attract people who are interested in passive investing, of course, but more likely they’re going to attract people who are active investors that are looking to network with other active investors, they’re looking to find deals, they’re looking to form partnerships… But there may be opportunities to meet passive investors, there may be opportunities to meet accredited investors.
The reason why he added this one is because he did raise a portion of money from the local multifamily meetups, but not as much as he initially thought, and it was only a small part of the pie. But that could just be location-dependent. You might be in a large market, that has meetups that are specific for accredited investors, for passive investors… Or even better, you can start your own meetup group, that focuses on educating passive accredited investors. That’s probably the best way to use the multifamily meetup strategy to generate interest in your deals… Again, making sure you’re not explicitly advertising. So you’re hosting a meetup where you’ve got people coming in and presenting valuable content, and they’re networking with people that are there, forming relationships for bringing up your business and any deal that you have.
So those are the three different ways that this individual raised capital for their first two deals. One was that personal network, two was Bigger Pockets, and three were local multifamily meetups. Here is a breakdown of the percentage of dollars raised from each of these three categories, for deal one and for deal number two.
For deal number one, this individual had 13 investors. 70% of the money, of the over a million dollars, came from his personal network. Of that 70%, half (35%) came from his wife’s network, and then the other 35% came from his past business associate. Another 25% came from Bigger Pockets, so 95% came from personal network and Bigger Pockets combined, and another 5% came from the meetups.
The next deal, between his wife’s network, the business associate and Bigger Pockets accounted for over 90% of the capital, and then the rest came from the multifamily meetups or referrals. So on the second deal he had 15 investors; of the original 13 investors, 5 were repeat investors for the second deal, so obviously people came from the wife’s network and the business associate.
A few other interesting points about this individual’s deal… He said that he didn’t really have much success with referrals. He asked for a few referrals but didn’t feel confident enough to ask for too many, since it was his first deal. But he does believe that referrals and repeat investors will be a larger portion of the money-raising pie moving forward. Then also, the number of investors from his wife’s network and Bigger Pockets were essentially the same; he had 13 different investors, so say 5 came from his wife’s network and 5 came from Bigger Pockets, but the amount of money that was actually invested from these individuals were different. So he believes that this difference comes from the trust factor; people from Bigger Pockets don’t necessarily know him as well as people from his wife’s network. The more you know someone, the more likely it is that they’re going to invest a larger amount of money.
Lots of lessons learned here. The biggest takeaway is that the majority of your money for your first few deals are gonna come from your personal network. And again, that could be things like family, friends, or past business associates, or people that are a few degrees of separation away from you, that have a pretty large network of high net worth individuals.
That concludes this episode. Again, it’s standalone, so I guess that concludes this series as well. Again, you learned how an investor was able to raise over one million dollars for his first few deals.
In the meantime, until we get back to the Syndication School tomorrow, I recommend listening to some of our other Syndication School series about the how-to’s of apartment syndications. Download the free documents for those series, and start to put some of the lessons that you learned in those series, as well as this series, into practice.
Thanks for listening, have a best ever day, and we will talk to you tomorrow.