Many young syndicators start raising capital from family and friends on their first several deals. Raising money from family and friends is intuitive and natural to many; however, the downside of this strategy is that your capital sources is limited to who you know. You might be lucky to know many wealthy friends and family members that can invest in real estate, but many don’t have that solid network.
Instead, you can expand your network and raise capital from investors who don’t know you (yet). On my first deal, I’ve raised capital from both family and friends and from strangers (accredited investors). About 75% of the capital came from the last group, so I quickly realized that this should be my main strategy. In this article, I will share how I did it.
Before explaining each of the 3 tactics I recommend, which I used when I first began syndicating properties, I’d like to share my basic philosophy on attracting investors. I call it the “don’t ever do the hard sale” approach. The best way to attract strangers who have the potential to become investors is by providing them with something that has real value without asking for anything in return or trying to sell them anything. Provide knowledge, ideas, strategies - whatever you feel is right for the moment, but don’t ask for anything in return. Don’t try to sell anything or discuss any particular deals.
By taking that approach, you build rapport and trust with potential investors. The fact is, most people are expecting you to ask for something, and when you don’t they’re pleasantly surprised. By providing value without being asked for anything in return, you’re showing that you value that person and you’re being genuine and sincere.
Here are the top three creative tactics I use to expand my reach and attract investors who used to be complete strangers to me.
Creative Tactic #1: Host a Meetup for Investors
A meetup is the ideal forum to disseminate your information, knowledge, and investment ideas to a group. You can discuss previous deals, multifamily market trends, industry knowledge or any other subject you feel would be of value to potential investors. When I did this, I found that after the meetup people came to me to ask about investing in my future deals.
Over time, people who attended my meetups became investors in my syndications. I never asked for anything, and I never tried to sell anything during my meetups. The best part of a meetup is that it’s face-to-face; people can see how passionate you are about your topic, as well as how sincere you are in providing information without asking for anything in return. Most importantly, this is all done before you even have a deal to present.
There are several key advantages to hosting meetups. First, it’s an opportunity to demonstrate your expertise to a targeted group of people who don’t know very much about you. In the syndication business, having a successful track record is one of the “gold standards” for investors looking to invest their money. A meetup gives you the opportunity to talk about that record.
In addition to demonstrating your expertise and success, a meetup is a great way to build goodwill with potential investors. If you lead the meetup with value and provide valuable information and ideas, you have a good chance of converting attendees into investors over time.
You’ll gain something else from hosting meetups - experience presenting to groups of people. Every meetup is an opportunity to hone your presentation skills and showcase your leadership abilities. This becomes extremely important when you’re sitting in front of a group of potential investors talking about a property.
Your best approach in a meetup is using the “how to” format: “how to maximize your investment, how to determine the top markets to invest in, or how to negotiate a sale price based on the building’s or neighborhood’s condition.” These are just suggestions, but you get the idea. Just be sure you’re providing something of value. Finally, make the meetup fun. In addition to providing valuable information, let the group walk away feeling really good about their experience.
Creative Tactic #2: Host a Free Webinar for Passive Investors
Passive investors who are just getting into real estate investments can’t get enough information. They’re excited, motivated, and genuinely interested in any and all real estate investment topics. Most importantly, they always want to learn more before putting their money down on an investment. That’s where you come in - because your experience and knowledge are exactly what they’re looking for.
A free webinar is the ideal format because as the host you control the topics discussed, but based on the questions from the participants, you’ll gain key information on the subjects that they’re interested in learning about. Also, a webinar is interactive, and you’re able to discuss information and topics in real-time.
One of the biggest benefits of holding a webinar is the information you capture when people sign-up. Most webinar software captures a lot more than a name and an email address. You shouldn’t immediately contact anyone, however. Just know that you have a qualified person attending the webinar because they are responding to the topic you’re presenting.
You should approach your webinar as if it was a personal tutoring session, complete with questions, feedback, and engagement from the participants. It’s unique to webinars when participants can help determine the direction you take during your presentation. Plus, it helps build a relationship that you simply couldn’t achieve with any other medium.
Creative Tactic #3: Become Active on Bigger Pockets
Bigger Pockets is the go-to website for real estate investors, especially those who are interested in multifamily properties and passive investing. The website provides you with the ability to network with others and has a variety of tools used to analyze properties and determine whether they’re a good deal. There is a lot of free content, and they also offer a paid suite of features for those who want more.
Bigger Pockets also offers an extensive amount of educational materials, including videos, podcasts, blog posts, and more. It features more than 2,000,000 pages of real estate information that is available to you at no charge. The website also features a marketplace for real estate deals or services for investors that you can use to reach site visitors.
You may be wondering why I’m promoting someone else’s website. I have no financial interest in Bigger Pockets, but I’ve found that it’s an excellent way to show potential investors that I’m active in the field, knowledgeable about the industry and happy to help others by providing them with resources that will be helpful as they start to invest in multifamily properties.
I regularly go on the Bigger Pockets website and respond to questions related to passive investing, as well as to those investors with questions about multifamily property investments. I have received many messages back from my responses and other passive investors who followed the forums I am active in, and it’s another way to get my name out to the appropriate target audience that could lead to a business relationship down the road.
Some Legal Notes About Raising Capital
Before approaching potential investors, there is a key question you have to ask: is the investment that you’re proposing a 506(b) or a 506(c) offering? Because if you’re going to solicit money from strangers, it has to be a 506(c) offering.
Here’s the difference between the two: a 506(b) offering allows you to raise an unlimited amount of money while selling shares in your syndication to an unlimited number of accredited investors. There are some restrictions involved, including that there can be no advertising to market the offering, and you can’t sell to more than 35 non-accredited investors. In addition, any information you provide to accredited investors must be made available to non-accredited investors as well.
Why 506(c) is Helpful to Syndicators
If you want to sell shares in your syndication, you are allowed to advertise your offering using social media, websites, and other means as long as you only accept accredited investors. This is a huge advantage over a 506(b) offering, because with 506(b) you are not allowed to advertise to market your offering.
There are other restrictions on a 506(c) offering, including that you take reasonable steps to ensure your investors are accredited at the time of the investment. This can be easily accomplished by verifying income from the previous two years, verifying assets by reviewing statement balances, or by getting a written confirmation from a licensed attorney or CPA that the investor is accredited.
It’s important to discuss these issues because we’re talking about raising capital from complete strangers. Even if you’re new to syndication, you want to demonstrate your expertise by having the proper offering.
There will come a time when you’ve exhausted your list of family and friends as potential investors and have to seek out complete strangers for your next syndication. If you prepare properly, this process won’t seem as daunting to you if you hadn’t prepared for it. Using the creative tactics I’ve outlined, and have personally used successfully, will provide you with a head start when looking for new investors. These tactics are proven, easy to implement, and will generate the results you’re looking for.
Are you a real estate investor and interested in learning more about passively investing in multifamily properties? Click here to download the Top 5 Critical Deal Components Any Passive Investor Must Examine.
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About the Author
Ellie Perlman is a real estate investor who owns multifamily properties across the U.S. Ellie is the Founder and CEO of Blue Lake Capital, a real estate investing firm specializing in multifamily investments. At Blue Lake Capital, Ellie helps investors grow their wealth by investing alongside her in large multifamily deals.
Ellie leads a mentoring program, REady2Scale, where she coaches people to become multifamily syndicators by building a syndication business and scaling it.
She started her career as a commercial real estate lawyer, leading real estate transactions for Israel’s largest real estate company. Later, she transitioned to a property manager role and oversaw properties worth over $100MM.
Ellie holds a Masters in Law and an MBA from MIT Sloan School of Management. She is a Forbes author and a real estate investing podcast host.