JF1842: Where Does The Majority Of Joe’s Investor Capital Come From? Syndication School with Theo Hicks
Theo is back with some important syndication information. He will be covering where the majority of Joe’s (Ashcroft Capital’s) investor capital comes from. This information is being shared with you so that you can take the information and use it for your own syndication business. Even as I write these notes, it’s hard to believe that Joe is okay with sharing all his “secrets” but nonetheless, here we are, telling you exactly where Joe finds investors to invest in his deals. 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 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 our Syndication School series that’s focused on a specific aspect of the apartment syndication investment strategy, and for the majority of these series we also offer a free resource for you to download, that accompanies the series. These episodes air every Wednesday and Thursday on the podcast, and they will also be available on YouTube for the video version. All of the Syndication School series can be found at SyndicationSchool.com, along with all of those free resources.
This episode is going to be a standalone episode, and we are going to talk about where the majority of Joe’s capital comes from for his deals. We’ve definitely hinted at this in the past, but we don’t have a dedicated episode that focuses specifically on where Joe’s money comes from. And since they’ve done over 20 years – I think they’re getting close to almost 30 deals now – I’m sure that a lot of people out there are interested about where Joe gets his money from. So we’re gonna go over that today in this episode, so by the end of this episode you’re gonna learn some lessons Joe learned when he did an analysis of his investors.
Now, the document Joe uses to track not only the people who invest in the deals, but the amounts that they invest as well, is the Money-Raising Tracker, which is one of the resources we have available for free at SyndicationSchool.com. So if you go to SyndicationSchool.com, you can download that free Money-Raising Tracker, and you can essentially perform the same exercise that Joe performed.
So where does Joe’s money come from? The first thing that he looked at during this analysis was breaking the investors into two categories. The first category is going to be new investors, so the people who have never invested in a deal before; once they actually invest, they’re [unintelligible [00:05:22].03] as a new investor.
The other category is returning investors. These are people who were obviously originally new investors, but they’ve either come back for a second deal, a third deal, a fourth deal etc.
The first thing he looked at was the total number of new investors versus the total number of returning investors on the deal… And he determined that approximately 70% of the people who invested in the particular deal that he did a breakdown on were new investors. Then obviously the remaining 30% were returning investors.
One interesting thing that he did, that maybe most people wouldn’t have done, but it’s a more important metric than just the absolute number of new investors versus the absolute number of returning investors, and that is the proportion of capital that was invested by these two groups. So of the entire money-raise, how much of that was invested by new investors, and how much of that was invested by returning investors. When Joe did his analysis, he determined that the returning investors actually invested more than the new investors. It wasn’t by much. It was actually 49.6% of the total raise, was from new investors; 50.4% came from the existing investors.
So before we get into where these people came from, Joe had two important takeaways from that. Number one was that a new investor is likely not going to invest — now, there’s obviously some cases where they do, but they’re most likely not going to invest as much as a returning investor. So with this particular deal, even though 70% of the total number of investors were new, they only accounted for a little bit under 50% of the total raise… Whereas the returning investors accounted for 30% of the total number of investors, and invested 50% of the total equity raise.
So what does that mean? Well, that means that we should be focusing on getting new investors, of course, because those new investors are going to ideally become returning investors… But the goal should be to retain as many investors as possible. When you do your first deal, 100% of those people are gonna be first-time investors, and throughout the business plan you’re doing all of your other asset management duties, but one thing you should be focusing on is “What should I do in order to maximize the total number of returning investors. What can I do to maximize the number of investors who come back for my second deal?” Just off the top of my head I can think of a few…
We’ve definitely talked about this a lot on the Syndication School series, but number one is going to be transparency. Just an example – if something goes wrong at the property, whether it be some sort of physical issue where there’s a fire, or a flood… If you are not hitting your occupancy projection, if you’re not hitting your rent projection, the first thing you need to do is make sure you let your investors know. But before you let your investors know, you don’t want to just say “Hey, we’re not hitting our occupancy goal” or “Our occupancy rate is 80%”, when you projected 90%. You want to also include the reasons why it’s so low, or so high, depending on what the metric is, and then what you plan on doing to fix it… And even better, you’re already in the process of implementing that solution.
So if it’s an occupancy issue, you can say something along the lines of “The reason why our occupancy level is below our projections is because of X, Y and Z.” Maybe there’s a property nearby who’s offering some sort of rent special… There’s plenty of reasons why occupancy could be low. And then “Our plan to fix this is to do X, Y, Z.” So if it’s a rent special at a nearby property, you would also offer a rent special as well. Maybe it is you creating a specific marketing plan that your property management company and you both create for you to increase marketing spend by offering a referral program, maybe doing some corporate outreach, maybe printing out some fliers and dropping them off at local businesses… Things like that. So transparency is obviously important.
Number two is going to be to make sure you’re conservatively underwriting your deals. That way you minimize the risk of running into some sort of issue with your projections versus the actuals. So if you’re aggressively underwriting, then you’re more likely going to have the actual performance of the property be off from your projections, which is going to be an issue, especially if there’s nothing you can do to fix it, because of the incorrect projection.
So there’s a lot of different things you can do to make sure you’re retaining your investors. Those are just a few examples. But overall, it’s just – do what you say you’re going to do and you should be fine. As long as you say you’re gonna do X and you do X, as long as you’re gonna distribute this much money to them and you do it on time, if you’re making sure you’re replying to emails quickly… Things like that. Just pretty normal things that anyone would do common-sensely when raising money from people.
Just think about it from your perspective – if you were giving your money away to someone, what would you want in return, in order to give them more money again? And it’s not just making money, and it’s not just preserving money… It’s also how they’re treated as well. Because if they’re making all the money in the world, but they never hear from you, they’re more likely gonna go to someone else who actually explains what’s going on and keeps them up to date, so they know what’s going on.
That was the first lesson. I’ve talked about that one for a while, but the first lesson was that the returning investors invest more than new investors… So when you have people investing in your deal, make sure you’re taking care of them, and don’t just say to yourself “Well, they’ve invested, so they’re gonna keep investing forever.” That’s not necessarily the case.
And then the second lesson is to always have at least three ways to bring in new investors. Use the strategy that I’ve mentioned before, and some other strategies we’ve talked about in previous Syndication School episodes to convert them.
Now to the money part, which is where does Joe raise his money from, so what are Joe’s three ways to bring in new investors. Here’s are his three largest lead-generation sources. Number one are going to be referrals from his current network. Before we go any further, make sure you’re thinking about these from your perspective. When I say referrals from Joe’s current network, think “Okay, well maybe my number one source of capital can be referrals from my current network.” So think about it that way, but I’m just gonna explain it in the context of Joe… But make sure you’re extrapolating to yourself.
So it’s not like he actually asks them like “Hey, can you invest in my deal?” or “Do you wanna invest in my deal?” That’s not how he’s actually getting referrals. It’s more indirect. One example of how Joe generates referrals from his current network of investors – it’s not going up to his investors and saying “Hey, do you have anyone else you know who wants to invest in this deal?”, instead he does things that make them want to proactively refer someone. It makes them say “Wow, this is such a great investment. Joe is such a good guy. He’s very helpful. I think this will be a really good opportunity for you, my friend, to also talk to Joe and see if it makes sense to invest in his deals.”
And one thing that we did that was very successful is when we wrote our first book, the Best Real Estate Investing Advice Ever volume 1. I remember Joe bought 50 or 100 copies of the book – maybe even more than that – and he mailed two copies to each of his investors. He handwrote a personal note in one of the books, directed towards that investor, and then told them to give the other book to a friend of their that they think would be interested in the book.
So one book was for the actual investor, with a personal note thanking them for investing, referencing something about their personal life that Joe knows… So it was more personalized, not just the same note for every single person. And then when he sends the book, he says “Hey, do you mind giving this book to someone else?” Very powerful. Now the person isn’t just saying “Hey, Joe’s a really good guy. Do you wanna invest in his deal?”, instead they’re actually giving them something tangible; they can read the book, they can see what Joe knows… Or at the very least see that Joe’s an author, and they see his name on the book, and they are more likely to invest at that point, rather than just the referral… Which, of course, is important. Word of mouth referrals are very important, but this is just kind of an added layer on top of that.
Examples for you – if you have a book, you can give a book out to your investors, even if they’re not actually investing in your deals yet. The idea is to give them something that you created, for free, that shows your expertise about what you’re doing. So that’s number one.
Number two is the podcast that you’re listening to right now, The Best Real Estate Investing Advice Ever Show. By having a podcast – and again, if you wanna learn more about how to create a podcast, why to create a podcast, things like that, make sure you check out the Syndication School episodes about thought leadership platforms… But essentially, having a podcast allows you to have a strong online presence. So if someone were to google Joe Fairless, it would bring up a podcast that is the world’s longest-running daily real estate podcast. The fact that it’s daily is also important, not just for the fact that he can say it’s the longest-running daily real estate podcast, but he’s able to get in front of people every single day. So rather than just once a week in front of people, he’s getting in front of people every single day, without actually having to talk to them one-on-one.
He talks about his business on the podcast, but more importantly, he just displays his expertise and he displays his willingness to help others and to add value to others. So someone who’s listening to that, hears Joe and knows about Joe, likes Joe, then goes to the website and sees that he raises money for deals, they’re interested in investing in deals, the connection is there. Without the podcast, that person might not have ever found him.
So that’s number two, the podcast. Again, this kind of trickles over into the blog, YouTube channel, conferences… Really just thought leadership in general. So if you don’t have some sort of thought leadership platform – that’s Joe’s number two way of raising capital, so you might want to take his advice on that.
And then lastly, number three is Bigger Pockets. Kind of a thought leadership platform, but a little bit different. Bigger Pockets is great because it is specific for real estate entrepreneurs. A lot of people on Bigger Pockets are active, but some of them are interested in passive investment opportunities. So by Joe obviously having previous deals done, having his thought leadership platforms, and including that information in his biography, then he takes it a step further and he goes on Bigger Pockets and he goes on the forums and answers questions, and posts blog posts to Bigger Pockets…
So anyone who is interested in learning an answer to a specific question, they go by, they read Joe’s name, they see at the bottom that he’s an apartment syndicator, that he’s an author of books, that he’s the host of a massive podcast, they click on his bio, learning more about he does, and then there’s a link – because if you have a Bigger Pockets pro account, you can have a link to your website – they go to his website and they see that he raises capital, and they submit a Contact Us form and the next thing you know is they’re investing in a deal. Then, of course, there’s also the added aspect of all of the friendships and relationships that Joe has formed on Bigger Pockets.
So those are the three main ways that Joe is able to get capital. Number one is referrals from his current network – we talked about more specifically from current investors or current clients, but this is also just people that he knows. In the Best Ever Apartment Syndication Book we talked about his first deal, and every single person that invested in his deal was someone that he knew for a long time, and none of them were family members.
Then from there, once you actually get your base of investors, that is where the referrals start to come into play. So that’s number one.
Number two is the podcast. For Joe, it was the Best Real Estate Investing Advice Podcast. For you it’s gonna be some sort of thought leadership platform in general. And number three is Bigger Pockets. The strategy here is to create a Bigger Pockets pro account, make sure you create a very strong bio that lets people know who you are and what you do as quickly as possible, without dragging on too long. One of my biggest pet peeves is people that have that super, super-long Bigger Pockets bio. I like it to be concise, so that I can learn exactly what you do right away, and then learn more about you once I reach out to you.
So create your Bigger Pockets pro account, make sure you have a strong bio, a link to your website, which requires you to have a website in the first place, which we’ve talked about on previous Syndication School episodes (the one about thought leadership platforms), and then make sure you’re posting to Bigger Pockets on a consistent basis, answering questions in the forum, repurposing your thought leadership platform content on the blogs… And then from there, don’t expect to have instant results, but if you do that consistently and build up a reputation on Bigger Pockets of being someone who adds value, if you do it every day, you’ll be able to get on the Top Contributors, which will increase your visibility even more, and that will eventually lead to investor leads.
Then again, the other main takeaway from this episode I want you to come away with is that people who have already invested in your deal are more likely to invest more than people who are first-time investors. In this specific example, 30% of the investors on one of Joe’s deals were returning investors, but they accounted for 50% of the capital that was raised.
That concludes this episode. Now you know exactly where Joe gets his money from, and we also talked about some strategies of how you can replicate Joe’s success. In the meantime, until we come back tomorrow for more Syndication School series, check out the other Syndication School series. The majority of those have free documents for you to download as well, so make sure you check those out. All that is available at SyndicationSchool.com.
Thank you for listening, have a best ever day, and we’ll talk to you tomorrow.