The other day, someone in my private Facebook group on multifamily real estate investments asked how new investors can syndicate deals. This was a great question.
I’m sure you’ve heard people say, “if you find a good deal, the money will come.”
It’s true ONLY if you build your investor network first. I know this from bitter personal experience. Still upset over a deal I lost because I had not built the network large enough first.
Here is the ten-step formula for new investors to begin to syndicate deals:
- Decide on your investment strategy and put together a brief pitch book. This contains (in this order): your bio and picture; your partners’ bios and pictures; a list and brief description of the people on your professional team (at least your lawyer, accountant, property manager, mortgage broker); a description of your strategy, which should include the markets where you plan to invest, the types of assets you plan to pursue, your strategy (i.e., buy & hold, fix & flip, value-add, etc.) and why you picked that strategy. Include maps of the markets and pictures of the kind of assets you plan to buy.
- Start networking with everyone you can. But never ask them to invest. Tell them you are starting the business and you want their advice. Ask them if they know anyone who might be interested in investing. If the person you’re talking with is interested, they will tell you. Be sure to get referrals and follow up. Repeat this process with everyone you speak with. Sell them on your dream, but never ask them to invest. Leave them hungry.
- Be sure to capture everyone’s contact information in a spreadsheet and include every time you meet them or call them. You want these records for follow up and so that you can establish that you have a relationship with them before you offer them a deal.
- Get everyone to sign an Investor Qualification form that gives you their contact information and qualifies them as an accredited or sophisticated investor (definitions on Google). You also want to find out how much they are willing to invest, so you know how much money you will have to work with. Assume only 30% of people who sign an investor form will actually participate when you have a deal.
- Keep doing this in a systematic way, while you are looking for deals. But you really need to lay the groundwork before you get a deal or you will come up short.
- Make connections with other investors who have been at it a while longer. Offer to partner with them on deals, where you would bring the deal and your investor group, and they would bring theirs, and you would split the sponsor’s participation in some negotiated way based on who is doing what. The more of these people you know, the more people you have to fall back on if your own investors come up short.
- Start looking for deals.
- Once you find a deal, you need to put together a teaser to send right away and then a detailed marketing package once you have the deal under contract. You also need to have your lawyer put together a prospectus and subscription agreement for a private placement. You need to start this process immediately when it looks like you’re going into contract.
- Investor funds always go directly to escrow, never to you. You never want to touch investor money, ever.
- Scramble like mad until you sell all the investment units. You should assume that, of the people who have previously told you they want to invest with you, no more than 30% will actually invest in a given deal. 25-50% of the people who said they will invest in this deal won’t when it comes to crunch time. So you want to build your investment group large enough that people are fighting to get into your deals. Be sure to tell them how limited the spaces are when you sell your deal, to create scarcity.
It’s not easy, but this is the way to get it done.