JF1885: 5 Steps To Raise Over $40,000,000 For Apartment Syndications | Syndication School with Theo Hicks
Joe was once starting from no money raised just like every other investor gets into raising money. After a lot of deals, he was at a point where he had raised $40 Million (over two years ago) and wrote about it for others to learn from. Today, Theo is sharing those lessons with us via the podcast. 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, every Wednesday and Thursday, we release two podcast episodes for the Syndication School series on the best real estate investing advice ever show, that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these series, especially the ones earlier on, where we went through the entire apartment syndication process, we offer free resources. These are PowerPoint presentation templates, these are Excel calculators, they’re PDF how-to guides that accompany the episodes in the series… And again, those are free. In order to download all of the free documents, as well as listen to the past Syndication School series, visit SyndicationSchool.com.
If you’re new around here, I highly recommend starting from series number one and working your way through the twenty, because for the first chunk of episodes we went through the entire apartment syndication process, from start to end; from not knowing anything about apartment syndications to selling your first deal. Along the way, we’ve provided a ton of free documents that you can use to guide you on your journey… So make sure you check all that out. Again, that is SyndicationSchool.com.
In this episode we are going to talk about raising money. Joe interviewed someone on the podcast who has closed on over 2,800 apartment units since 2010. He interviewed this person back in 2017, so it’s probably a lot more now. And for these deals he raised 40 million dollars, four-zero million dollars. But of course, at one point in his career he was just like you, if you haven’t done a deal before. He didn’t have any connections, he didn’t know how to invest in apartments, so he told his story of how he got from where you most likely are right now, to where he is today. Based on the conversation, we broke his journey into five steps. So these are the five steps to raise over 40 million dollars for apartment syndications.
Step number one is going to be to build your reputation. How I’m gonna go about this is I’m going to explain first what he talked about, and then we’re gonna talk about content and advice that we’ve given on this podcast, on our blog, in our book, that echoes his advice.
So number one is to build your reputation. Before he even entertained the idea of raising money for apartment deals, he was already investing in apartments, in multifamily on his own, using his own money. He also ran a successful sales and marketing company. Due to the success of both of these jobs – buying real estate on his own, as well as running and starting his own company, he was known by many other entrepreneurs in his local area to be a savvy entrepreneur who could effectively manage, run, scale a business.
Of course, this gave him a solid reputation amongst his entrepreneurial peers. It makes sense that this is step number one, because due to this reputation from his previous business success, he was able to eventually (as we’ll talk about in future steps) leverage that to raise capital.
So in his particular case, his background was investing in real estate on his own, particularly multifamily, which is even better, because if you’re gonna raise money for multifamily deals, it’s good to be able to leverage a background in successfully doing that on your own. But also, he had experience running a company. And when you’re doing apartment syndications, you are starting a company. So it’s different than just buying one-off deals on your own. You’re actually running a full-fledged company, with team members, with stakeholders who are your investors… So having a background in starting your own business and in running your own business is also very important.
So the two main things that you need before becoming a syndicator is going to be real estate experience and/or business experience. Real estate experience – buying your own deals, even if it’s buying single-family homes like Joe, and also business experience, whether it’s starting your own company or working your way up through an existing company to a high/director level.
No one’s gonna trust you with their money if they’re not confident that you can navigate the syndication niche. Obviously, if you haven’t done a syndication before, you’re not gonna know how to do a syndication. You can get educated, but you don’t really know how to do something until you actually do it… So the next best thing is to show your ability to successfully navigate other similar niches, so successfully navigate buying your own properties, successfully navigate managing your own company, things like that. So that’s step number one – build a reputation; how you do that is by having previous real estate and/or business success.
Step two is to tell your story. After building a solid business reputation, the next step is to locate the high net individuals that are in your current network, so the people that you already know, and then tell them your story. You’re not gonna have a reputation unless it’s known. So you could have done all the deals in the world, managed a successful business, but if no one knows about it, then it’s not really powerful. That’s where telling your story comes into play.
Now, if you’re thinking to yourself “Well, I don’t have a network of high net worth individuals”, that means you most likely need to continue working on your reputation. Because when you’re performing at a high level – in real estate, in business – you’re going to cross paths with people who can be potential private money/passive investors. On a more personal note, a perfect example is my wife works for a big Fortune 500 company, and she has a lot of people that she works with who might not necessarily be accredited, but would be interested in passively investing. She’s worked her way up through this company and she’s met a lot of people who have the capital to invest in these types of deals. This is one example.
If you’re investing in multifamily, then you likely know a lot of other multifamily operators who may have connections to other passive investors.
Another example would be Joe. He was a VP at his New York City advertising firm, so when he was ready to raise money for his deals, there were people within the industry that he had already created relationships with, who were his first investors and invest with him to this day. Because they saw his success in business, in the advertising industry, they also saw his success in real estate, purchasing multiple single-family homes and teaching people how to buy properties, but more importantly they knew that he actually did that, they knew that he worked his way through the company, they knew that he was involved in real estate.
The individual who Joe interviewed similarly also had the same steps [unintelligible [00:09:10].10] obviously, he told his story, so what he said is “What really helped me was I was able to show them (his passive investors) 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 the same investable income, and just told them my story.”
Overall, after you’ve built your reputation in business and/or real estate, you want to use that as — I don’t want to call it a selling point, but you want to leverage that when you’re having conversations with the high net worth individuals you met whilst creating that story. So that’s step two, tell your story.
Now, this something that he didn’t mention, but one great way to tell your story to come across as a credible person is to start a thought leadership platform. We’re not gonna talk about that in detail today, because we’ve got plenty of content on that on the blog and in past Syndication School series. If you go to JoeFairless.com and you search “thought leadership platform” in the search function, you’ll find countless content on how to do that, and why you should do that.
So step one – build a reputation. Step two – tell your story. Step three is to get investor commitments. Now that you’ve got your reputation and you begin telling your story to high net worth individuals, the next step is to get them to commit to investing in your deal. And the individual that Joe interviewed had a great story about how he did this. He said “I was invited to sit on the board of a local startup bank. I was listening to a 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 that was a good idea, a wise investment. I heard conversations like “Well, you might 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 came along.”
So because of his business reputation, he was invited onto this board. Due to his previous real estate investing experience and successes, he had a compelling story to tell. So in a combination with both of these things, he was able to raise money for his first deal. In this particular case, it was from people that were on this bank.
So how can this apply to you? Well, this is why it’s good to have both. If you have a strong business reputation – you start a company or you’ve worked you way through a company – you’re likely gonna get more opportunities to be in front of these potential investors. Once you’re in front of these potential investors, you need to have another story to tell them about why they should be investing with your real estate deals, and a great way to do that is to tell them about your successful real estate investing background. Those things go hand in hand. You can do one without the other, but it’s much easier to have both in your background.
And again, you don’t need to have started a massive company on your own. You can, as Joe did, work your way through a company and meet people through that, and find opportunities through that. So step four is to increase your investor network through referrals.
Once you’ve actually done your first deal, or two, as long as those deals were successful and you took care of your investors, and you did what you said you were going to do, then your current investors will likely refer you to their other high net worth friends. Then from there it’s a snowball effect.
So referrals are the best way to get more investors, because of the concept of social proof, which we’ve talked about plenty of times on the podcast. You’re more likely to buy something at the recommendation of a friend than at the recommendation of that company.
I was reading an article last night about social media influencers, and how companies are going away from paying the multi-million follower accounts for their advertising, and again, they’re paying smaller accounts, just random people, a few hundred bucks to post pictures of them wearing their clothing or using their product… Because I’m more likely to buy a product if I see my friend using it than if I see some super-fancy person that I don’t necessarily know promoting that product. That’s just an example of referrals, but this also applies to real estate.
If I’m investing in a deal and it goes really well, and I tell a friend “Hey, I’m investing in this deal. It’s going really well, you should take a look”, they’re more likely to do it than if they’ve found it on their own, or if the syndicator reached out to them and they didn’t know I was investing into that deal.
The individual that Joe interviewed at this point 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…” 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.”
Now, the last step – it goes hand in hand with step four… So step four was, again, increase your investor network through referrals. Step five is to retain current and referral investors. Once you’ve received a new investor, whether it’s one of your first-time investors from your current network, or a referral, or somebody you’ve found from somewhere else, you want to focus on retaining them by continuing to syndicate successful deals.
I interviewed someone from Joe’s podcast last week who was talking about the fact that a lot of people focus on finding new investors and don’t focus enough on retaining current investors… Because they don’t realize the power of the referrals.
Technically speaking, once you brought on your first batch of investors from your current network, it’s not a requirement to have to go out there and always find new investors, because your current investors might do that on your behalf, as long as you’re taking care of them. And again, we’ve done plenty of podcasts in Syndication School; I believe there’s one that’s titled “How to retain passive investors”, so make sure you check that out as well. Again, that’s at SyndicationSchool.com, or you can search “retain passive investors” on Joe’s website in the search function.
So as long as you consistently provide your investors with a solid return, you are transparent with the communication, not only will you receive more referrals from them, but they’ll also come back and continue to invest, and ideally invest more and more.
On this point, the person that Joe interviewed said “We recently closed on a 300+ unit building. We raised over three million dollars, and about 85% of those investors had invested with me on other deals.” So they were current investors, and just coming back for another round.
Again, referrals are powerful, but also retaining your current investors is probably as important as getting referrals.
To summarize, the five-step process to raise over 40 million dollars – maybe even more than 40 million dollars; 100 million dollars, a billion dollars – is step one, build your reputation, step two, tell your story, step three, get investor commitments, step four, increase your investor network through referrals, and step five, retain those current investors and retain those referral investors.
That concludes this episode. If you want to actually listen to the podcast interview that I was referencing for this, it’s episode 1093. The person Joe interviewed was Dave Zook.
Until tomorrow, make sure you check out and listen to some of the other Syndication School episodes and series about the how-to’s of apartment syndications. Make sure you check out all of the free documents that we have as well. Those are both available at SyndicationSchool.com.
Thank you for listening, and I will talk to you tomorrow.