One of the biggest challenges that small to medium-size investors and developers face when building a commercial real estate syndicate is finding qualified investors. We’ve compiled business tips that the pros use to raise money for any deal.
1. Build a great team – it’s everything
Before trying to access capital to fund deals, you need a killer team. The team must have enough experience to:
- Vet investment opportunities
- Operate (manage) a property successfully
- (Most importantly) Give investors comfort
Good analysis is the foundation of real estate investing. Some sponsors have enough analyst experience to analyze a deal themselves, and some prefer to hire an experienced analyst from a company like Bullpen (shameless plug).
A solid definition of a “good” investment is important when communicating your strategy to investors. Create a set of parameters around the types of properties you want to buy.
- What size properties do you target?
- What neighborhoods will you invest in, and how do you differentiate between neighborhoods?
- What condition must the property be in when buying, and why?
- Does your team have experience in buying and managing properties exactly like these? Prove it.
- What is your exit strategy?
- How do I know you’re picking the right market?
Teams best present to investors when their members are partners. New investors have a tendency to compile unrelated parties and present them as a team. Experienced investors will see past this common decoy.
Team members need to be financially and “reputationally” invested in the success of each deal.
In addition to great people, teams must have a clear “why.”
Why should I invest with you instead of a more experienced sponsor?
Your personal “why” is important when building a syndicate. Why are you doing this? What motivates you?
A strong team with experience and strategy will excite investors.
2. Create and distribute immense value
The most successful small and medium-size sponsors think about money raising as a process.
Some run low cost or free education platforms and have built an audience who trust their real estate experience. Some have vlogs or internet shows with strong followings. The best equity raisers have a strong funnel for creating interest.
Case study: Neal Bawa is a Bay Area sponsor. Neal has built a large pool of prospective investors through his education platform: Multifamily U. The platform provides users with multifamily education materials in the form of blogs and webinars geared towards investors. When Neal has a deal that needs to be funded, Neal can send the opportunity across his Multifamily U community, with whom he already has a prior relationship. The community has given Neal the credibility and audience to raise large sums of money quickly.
Case Study: Grant Cardone is an outspoken sales training executive. Grant created Cardone University, selling large training packages to corporate sales teams around the world. Within recent years, Grant has pivoted to create Cardone Capital, a real estate syndicate. Grant uses his charisma and energy to draw a large audience on his weekly show the Cardone Zone. One recent episodes has been viewed by over 46,000 people on YouTube. The power of Grant’s large audience has given him the ability to raise large amounts of money to invest in multifamily real estate.
Do you see the trend? The best real estate equity raisers have a process that creates value for a large audience.
To find your niche, ask yourself:
- What do I know more about than others?
- What do I know in which investors might see value?
- How do I differentiate the value of my message from others?
Be different and be persistent. Large audiences aren’t built overnight.
3. Be small to get big
The best equity raisers have a niche audience (or market) that they target. A niche allows a money-raiser to intimately target one audience. The most successful companies are built on niche ideas.
Airbnb was first started by utilizing airbeds to let strangers sleep in people’s living rooms (niche). The company has expanded, but their ultra-focus on this small niche allowed them to build a strong business.
Choose a niche that will resonate with your story. Messaging (or the story) is the key to building great companies, and real estate syndicates are no different.
Your company’s message speaks to your business, the team, and the way you solve your investor’s problems. Your message should differentiate you from competitors.
Case study: Diversyfund recently launched a crowd-funded real estate investment platform targeted to “non 1%” retail investors. The concept is not new. Crowdfunding has been around for years. Fundrise, Realty Mogul, and other platforms have leveraged the same idea to fund millions of dollars of real estate.
What’s different? The story. Diversyfund targets people outside of the 1% who want to become part of the 1%. On their website, their tagline is “Build Wealth through Mult-Family Real Estate | Opening up exclusive wealth opportunities to everyone.” Diversyfund has spent considerable money on LinkedIn and Facebook to communicate their message – they are the source for exclusive investments that everybody can access.