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In the world of real estate investments, syndications have emerged as a powerful tool for pooling resources and expertise to tackle larger projects. In recent year, the number of people doing real estate syndications has exploded with the help of content creators on YouTube and platforms/forums such as Bigger Pockets.
One of the necessary aspects of syndications and a point of focus for content creators is capital raising. Initiating a successful real estate syndication requires more than just a great property and a pitch. At JP Acquisitions, we’ve raised over $1.3M and have had countless investor meetings with individuals ranging from little knowledge about real estate to sophisticated investors. In this blog post, we’ll delve into some of the best practices for raising capital for a real estate syndication, helping you navigate this complex process with confidence.
Note – The definitions of the technical terms in any of our posts can be found in the glossary section of our website.
The Deal
Although this is almost needless to say, having a great deal makes the capital raising process easier. Deals can sell themselves to the right investors when the risks and mitigants, upside potential, and strategic gameplan are thoroughly thought out and easily identifiable. A key thing to remember is that not everyone can spot a great deal and while sophisticated investors can evaluate the risk/reward potential, novice investors require more handholding. Nevertheless, the point is that a deal with clear upside and minimal downside (i.e., risk/reward ratio) is easier to sell to investors.
Be Willing to Share
As the saying goes, “sharing is caring.” This saying applies well to the world of real estate syndications because by giving a higher share of profits to investors, their return is higher. If their return is higher and they see that the sponsor can execute the business plan, then they are likely to invest in your next deal. More so, those investors are likely to spread the word to their friends and family which can build a robust funnel for capital. Ask yourself, would you rather have a higher share of profits on one deal or do 10x the number of deals?
Network and Nurture
People invest with people they know, like, and trust. Thus, it’s important to constantly be growing your network and nurturing those relationships. Social media is a great tool for growing ones network, but the hard work comes with following up and making time for others. Don’t underestimate having a long phone call with people to catch up or taking some time on the weekend to have brunch and catch up. A little gesture can often go a long way.
Clear and Confident
To be frank, no investor cares about complex equations and big finance words. The goal is for investors to understand the deal, not impress them with your financial knowledge. With that in mind, don’t overcomplicate the deal with a complex financial model. Be confident in your numbers and seek to explain the investment at hand in as simple words as possible so the chance of the investor understanding is higher. Specifically focus on the potential risks and how you’ve mitigated them, the targeted returns, and the story behind why you think you can increase the value of the asset. Those are what matters and what investors care about.
Invest in the Deal Yourself
What shows investors that you’re confident is when you invest in the deal yourself. Without doing so, it’s more difficult for investors to see your motivation to want to successfully execute the business plan of the deal. At JP Acquisitions, we have at least a portion of our team invest in each deal and they do so not because it’s mandatory, but because they can clearly picture the business plan being executed. If we’re not investing in our own deals, why would we ask anyone else to?
Conclusion
Raising capital for a real estate syndication requires a multifaceted approach rooted in trust, transparency, and shared success. By adhering to best practices and embracing the significance of profit sharing, syndicators can unlock opportunities for growth, create value for investors, and establish themselves as trusted leaders in the real estate investment landscape.
If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via our contact form, by emailing a member of our team, messaging us on LinkedIn, or signing up for our investor portal to set up a meeting.
As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!
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About the Author
Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, investor relations, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.
Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.