JF2018: Debunking The Most Common Money Raising Myth | Syndication School with Theo Hicks
In this episode, Theo joins the myth busters crew and helps you understand why the idea of “you must have a history of multi-family deals to raise money for syndication.” He explains why as long as you have experience in either 1 of 2 other options you can still raise money for your apartment syndication. Listen to the full episode to learn what those two other options are.
To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.
Best Ever Tweet:
“The concepts of creating and executing a business plan apply universal, apply to real estate and any other endeavor you go into.” – Theo Hicks
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 back 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 Syndication School episodes, on the podcast as well as in video form on our YouTube channel, that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer some free documents. These are free PDF how-to guides, PowerPoint presentation templates, Excel calculators that will help you scale and grow your apartment syndication business.
In this episode we’re gonna do some myth busters on this show, and we’re going to debunk a very common money-raising myth that I’m sure you’ve heard countless times; it’s out there on the internet, in podcasts, on forums… People say that you need to have a strong track record in multifamily in order to raise money for apartment syndication.
The idea is that you haven’t done a large apartment deal before, and you want to raise capital from people to do your first apartment deal… But since you haven’t done one before, no one’s gonna give you their money, no one’s gonna trust you; they’re not gonna think you can do it, they’re not gonna think you can conserve and grow their capital, so they’re gonna go ahead and go with someone else who’s gotten done 10, 20, 30 syndication deals… Because it’s less risky.
We’re gonna debunk that in this episode, and then we’re going to talk about the things that you actually do have to do in order to raise money. Just because you debunk one myth doesn’t automatically mean that the opposite is true, that you don’t need a strong track record… Because you actually do need a strong track record, it just doesn’t necessarily need to be in multifamily. Because if that was true, the majority (if not all) of apartment syndicators just flat out would not exist.
There are people who do have experience in multifamily who become apartment syndicators. Maybe they had a lot of money and they were able to buy an apartment community with their own money, and they bought it, they managed it, they sold it, and they used that experience to raise money from people, so that they can scale their business, because they don’t have enough money to do 1,000 units a year, only 100 units a year. Or maybe they worked for a large multifamily institution as an asset manager or as an underwriter, or as a property manager, or had some other involvement in large apartment communities that covers one aspect of the apartment syndication business plan.
Maybe they were a mortgage broker for large apartments, maybe they were a property manager for large apartments, things like that. But many more, if not most – I would say the vast majority of apartment syndicators, including Joe, did not have any involvement whatsoever with large 50+, 100+, 200+ apartment communities before doing their first deal. So that alone basically debunks it.
It would be impossible for anyone to raise money if they needed to have experience raising money. It’s impossible to do something if the only way to do it is having experience doing that thing. It doesn’t make any sense.
So for any syndicator, they were at some point in their careers where if you’re someone who has this belief, if you do believe in this myth, are sitting where you are right now. They wanted to purchase a large apartment community, they wanted to use other people’s money to do that, but they didn’t have the experience. So what did they do? They didn’t let the myth of needing a strong track record in multifamily stop them from just doing it anyways, and doing it successfully.
So if you too want to debunk this myth in your mind, we’re gonna talk about the three things that you need to do, and then we’re gonna talk about something interesting that I heard at the Best Ever conference a few weeks ago, that was around the same topic, and what’s inspired this episode.
So the first thing you need to do is you need to change your mindset… Yeah, that’s it, change your mindset. Alright, number two — no, I’m just kidding. I’ll go into that a little bit more… So not only is the need to have a strong track record in multifamily a myth, but it’s also a limiting belief, which is a story that you’ve convinced yourself to be true. It’s a powerful story, but it’s still not true, as we’ve already displayed in the opening of this episode.
The analogy that I used is that it’s like watching a horror movie about the Boogieman, let’s say; it’s just a story, it’s just fiction, but it’s such a powerful story that every night for the next 20 years before you go to bed you check your closet, you check under the bed, you check the garage, you check the basement, because you think the Boogieman is down there, because in the movie you watched the Boogieman hides under the bed, hides in the closet, hides in the basement. But as we all know, the Boogieman isn’t real, and neither is this limiting belief about the requirement to have a strong record in multifamily.
The main difference between a syndicator who’s done a billion dollars’ worth of deals and an apartment syndicator who wants to do deals but hasn’t done one before, is this belief in the Boogieman. So just remember that the Boogieman isn’t under your bed, he’s not in the basement, he’s not in the closet, and you don’t need a track record in multifamily to raise money from people.
If you want some more practical advice, if the Boogieman story isn’t enough for how to start working on changing your mindset, some more practical things you can do – check out our Success Habits category at our blog. So go to thebesteverblog.com, check out the goals and success habits category of blog posts, and there’s lots of blog posts on there that you give you practical things that you can start doing today to change your mindset, and then just apply the concepts to this belief, and the fact that you can’t raise money because you don’t have any experience in multifamily.
Now, as I mentioned in the beginning, the myth is only partially a myth. The first part, the part that you need to have a strong track record, is actually true… It just doesn’t necessarily need to be in multifamily. There’s two different areas that you need to have experience in. It can be one, the other, or both… But it needs to be at least one of these.
The first one is a strong track record in business, because investing in real estate in general is running a business. You hear this all the time, “Treat your real estate investing like a business.” But apartment syndications are even more like a business. Essentially, what you’re doing as a syndicator – and as an investor, but there’s a lot more moving parts for the apartment syndications – is that you’re creating and then you’re executing a business plan. So you determine what you’re going to do, and then you actually do it.
So step one is determining what to do, making sure it’s the right thing to do, and then the second part is actually executing your plan. If you have a strong track record in business, then you have the skills to create and/or execute a business plan. It might not be obviously specific towards real estate, but the concepts of creating and executing a business plan apply to real estate and really any other endeavor that you go into. If you know how to execute your business plan, then you can do apartment syndications.
Now, what do I mean by having a business track record? It doesn’t mean that you just graduated from college and maybe haven’t even started a job yet at a large corporation like a Fortune 500 company, or that you’ve been there for a few years, in the same role, and gotten some positive feedback from your boss, or you feel really good about what you’ve done. That’s the experience, but that’s not a strong experience. It also doesn’t mean that when you are a kid you started a lemonade stand or a newspaper delivery business – unless, obviously, it was a massive success. Then [unintelligible [00:09:24].27]
I believe I talked about this on Syndication School – the two tips that you can learn from a lemonade stand. I guess a lemonade stand partially works, because we did do an episode and a blog post about how a lemonade stand can help you in your real estate investing business… So definitely check that out; it’s funny, it’s cute, and it’s packed with some pretty solid advice.
So those don’t count. Again, a lemonade stand kind of counts, depending on how you do it… But what does count is you’ve either started your own business – and it doesn’t really matter how big the business is, how small the business is – and it was successful, which means it was profitable. So you either made money on an ongoing basis, from sales or whatever, or you created the company and then sold it for a profit. So that’s one example of a strong business background, because you created a business, you created a business plan and you successfully executed the business plan, which is reflected by the fact that you made money.
Then the second one would be that you can be the guy that graduated from college, got an offer to work for a Fortune 500 company, but you need to have also been promoted multiple times in that company. So if it’s a large corporation, to like a director level or higher; if it’s a smaller company, there’s not really room for promotions or growth, so there has to be some other measurable metric that shows that you were successful at what you were doing. So if you were in sales, for example – I know there’s not a lot of room for promotion in certain sales roles, because that’s what I used to do… But if you continually grew your customer base or grew your sales revenue, or won awards for Salesman of the Year – these types of things would be relevant to having a strong business background, because all those things show that you can create and you can execute a business plan. And that’s what you want to have here, because 1) you need to be able to do that to be successful, and 2) you need to be able to portray that to your investors.
If you don’t have any business experience and they ask “Why should I invest with you? What skills are you bringing to the table?” and you say “Well, I just got hired at a really big company”, that might work for some people, but you’re not gonna be able to grow a syndication model off that experience. So that’s the second thing you need to do.
So the first is mindset, the second is business experience… The other experience that you need to have if you don’t have business experience – what you should have and is very helpful to have, even if you do have that strong track record in business experience, is to have real estate experience… And I guess to be more specific, I’ll say non-multifamily-related real estate experience. Here you have a little bit more flexibility than you do in the business realm, because you really wanna be involved in real estate in any realm, and then use that experience to transition into apartment syndications and raise money.
So you can be an investor, a wholesaler, fix and flipper, single-family rentals, small multifamily rentals, a developer… It can mean that you were a property manager, or worked for a property management company, it can mean that you taught other people how to become an investor – that’s what Joe did – it can mean you were a broker, a realtor, a lender, a mortgage broker… Some sort of involvement in real estate. Because when you’re involved in real estate, you understand how the transactional acquisition process works, as well as the management and disposition of real estate. So you’re specialized in real estate, you already have an insider knowledge of how the process works; now all you need to do is apply that knowledge and those skills that came from that knowledge to the larger apartment communities. So real estate experience that’s not necessarily related to multifamily is a requirement if you don’t have the business background, and a huge plus even if you do have that business background.
In conclusion, thinking that you need to have a strong track record in multifamily before you raise money for apartment syndications is a myth; it is similar to the Boogieman – it might be a scary myth of raising money without having the multifamily experience, but it’s still not true. People do it all the time, people have done it all the time, and people will continue to do it all the time.
Then once you’ve got these three things covered – the mindset, the business and the real estate experience – you’ve got most of your foundation set. The last thing you need to do – which is what you’re doing right now – is to get educated on the apartment syndication process. So you can buy our book about apartment syndications, you can listen to all the Syndication School series podcasts, download the free documents, you can go to our blog categories and read about apartment syndications… You can go anywhere on the internet and read and learn about apartment syndications; go to conferences, seminars, just so you understand the more specifics of the syndication process and how it either differs from whatever real estate you were involved in before, or getting an understanding of real estate in general, as well as apartment syndications, if you have that business background.
Now, the last thing I wanted to mention, which I think I mentioned in a previous Syndication School episode about the Best Ever conference and the top ten lessons that I learned, was about something that you can say in order to overcome an objection that an investor has about your experience.
So maybe you tell them about your real estate experience and they still say “Well, that’s all fine and dandy, but I’d much rather invest with Billy Bob Joe over here, because Billy Bob has done 20 apartment syndications, they still own 17 of them, so I feel a lot more confident investing with them. I feel a lot more confident giving them my money than giving you my money; you have only done one deal.”
The response you’d give to that, which comes from Neal Bawa, is what he said at the conference… It’s something along the lines of – don’t see exactly how I’m gonna say it, but the overall concept applies – “Sure, they’ve done more deals than I have, but since they have so many deals in their portfolio (say 17 deals) and they’re bringing on this 18th deal, most likely you’re only going to get one-eighteenth of their attention… Because they still have to focus on all their portfolio, managing all those employees, all those investors…
So the type of relationship and the type of attention that you’re gonna get from someone who has 18 deals is gonna be way less than the amount of attention you’re gonna get from me. Because this is my only deal that I’m working on right now. In fact, since it’s my only deal, I’m basing my entire reputation, my entire business on this one deal… Because if the deal isn’t successful, then my business is not successful, and then I am not successful, and then as a result you are not successful. There’s a very strong alignment of interest… Whereas if you’re investing with this larger company, if that deal fails, they still have 17 other deals, and 17 other deals’ worth of investors who are happy. And sure, you’re not happy, but they’ve got this large business and they don’t care about you.”
Say that however you want, but the concept is that if you’re this new investor, you can overcome that objection by explaining it around and saying “Not only is me not having experience not a problem, but it’s actually a positive because of…”
So the three things, again, are mindset, business experience and real estate experience to overcome this money-raising limiting belief that is indeed a myth… And then from there, if you have those bases covered, you need to get educated on the process so that you can speak intelligently about the apartment syndication to your investors, and then obviously increase your chances of being successful in implementing the business plan.
So that’s it for today. Make sure you check out some of the other Syndication School series and the free documents with those at SyndicationSchool.com. Thank you for listening, and I will talk to you soon.