Do you have a process for raising money to fund your syndication? When do you start the money raising process? Well, if you're like most people who are new to raising money for their syndications, you'll start raising money after you have a deal under contract.
That's what many of the so called educator guru's in the market teach; "Find a great deal and the money to fund your syndication will quickly and easily come flowing right in."
Fool's gold story to raising money
Johnny spends a couple months sourcing the prefect deal. He finds a 50-unit value add apartment building, selling for $2.5 million. Johnny will need to raise a total of $800,000 to close the deal.
With the property tied up under contract, Johnny has 90 days to close; 30-day for due diligence (DD) and 60 days to close thereafter.
As the DD period winds down without raising $800,000, he starts to realize that if he removes his contract contingencies without knowing how or where he's going to raise the money, he could lose his $50,000 earnest money deposit. Johnny is afraid that he'll run out of time and lose is money.
5-Step raising money process
To avoid uncertainty, stress and risk of not closing because the equity could not be raised, there is a 5-step process to follow BEFORE you find a deal to buy. There is no time limit when going through this process; no stress because you don't have enough time to pool investor funds.
This is a simple 5-Step process to follow. All you have to do is follow the steps, one step at a time.
Step 1: Pick your specialty
Don't chase rabbits. A big mistake many real estate investors make is chasing multiple types of properties in markets scattered everywhere. They are chasing rabbits.
Pick your specialty. Why? Because successful real estate syndicators specialize in a specific property type and market location.
You will need to decide your area of specialization. Pick a property type and market you have some experience with and that you are passionate about.
So, pick your specialty and don't chance rabbits.
STEP 2: Create your pitch book
Create an information package about what you're doing. Create a business plan that supports an investment strategy. You're going to create a 10-15 page pitch book on your investment strategy that talks about how you're going to make money for you and your investors.
The pitch book becomes your tool when speaking with investors about your investment strategy. Your pitch book clearly outlines how you're going to make money for them.
You'll find that your pitch book becomes the very core of your business. It's the backbone to your syndication business. It's the brand on who you are and your expertise. Your pitch book will become who you are and what you get known for.
STEP 3: Create your potential investor list
Now that you have a plan, it's time to start creating you potential investor list. These are people that you know who might be potential investors. You are going to create a list of people who you are eventually going to speak with about your pitch book....your game plan.
Make a list of potential people that may have an interest in investing in real estate. The best and easiest place to start is friends and family. Here are some other places to find investors for your list:
- Business Associates
- Accountants and Financial Planners
- Attorneys and Doctors
- Property Owners
This list will only be your starting point. Make sure you ask people on your list if they know anyone else that might have an interest in investing in real estate.
STEP 4: Conduct investor meetings
In this step, you are going to meet with potential investors on your list. You're going to talk to them about your pitch book and your plan.
Your goal during these meetings is not to sell them anything, but to gain their interest in your game plan. You are trying to get them excited about the prospects of making a lot of money and making a difference in the world investing in your game plan.
During these investor meetings, you are talking about your investment strategy; your game plan to make money. You are not talking about a specific deal. In the end, you are just trying to see if people on your list are interested in your strategy.
STEP 5: Build your investor database
All the investors who have an interest in your game plan go into a database...A YES Database. This is a special database that requires some management and oversight. These are your potential investors in the great deals you find, so you need to manage this database.
In this step, your goal is to stay in contact with your YES Database. Keep them excited about what you're doing. It might be a few months before you bring them a deal so keep them engaged during that time period.
There is any number of ways to stay connected and keep your name in front of your database. But ultimately, you're going to create a drip campaign by sending your database information.
The Real Story to Raising Money Success
Build your pool of investors before you find a deal using the five steps outlined herein. This process will allow you to build an army of interested investors so that when you find a deal, you have investors ready for your deal, making it much easier and quicker to get your deal funded and closed.
Become an expert in a marketplace and product type, then create a pitch book built around a unique money making strategy, create a list of potential investors, go meet these investors and see if they are interested in your game plan. Build your database of interested investors, until you have close to 20 people, then go find a property to buy.
Be safe, lower your risk, and eliminate the stress of raising money by setting up this 5-step process. All you need to do is set it up and work it. Work it!
Craig Haskell is founder of ValueHoundAcademy.com, a leading syndication and value-add training, coaching and networking platform for real estate professionals. Craig has devoted over 30 years to syndication of value add real estate, and has owned or managed 7,200 units and 2.8 million sq. ft. of commercial space and provided advisory services on over $2 billion in asset value.