Best Ever CRE Blog

5 Creative Ways to Raise Private Money with a 506(c) Offering

Written by Joe Fairless | Apr 24, 2017 7:16:17 PM

Back in 2015, I had Mark Mascia on the podcast to discuss how to best qualify a development deal (How a Billion Dollar Developer Qualifies a Deal). Since then, Mark has transitioned from being a billion dollar developer to a half a million-dollar syndicator. He currently controls over half a million dollars in retail and medical office space.

When raising money for his deals, he elected to use the 506(c) offerings over the 506(b) offering. The main difference is with 506(c), Mark is able to publicly advertise for accredited investors for his deals. Here is a video where I interviewed a securities law expert on the differences between 506(b) and 506(c).

Mark said, “the first and foremost reason that we like [506(c) offerings] is because we can talk about what we’re doing actively, and not have to keep everything a secret or know you personally before we talk about it.” Since he is able to publicly advertise for his deals, he doesn’t need to have a personal relationship with his investors, which in turn, enables him to utilize more creative techniques for finding investors.

When Mark first began raising money, his capital came from a single source – family offices, which are offices that manage the wealth for high net-worth families. However, he realized, “we just don’t want to have any sort of single source of capital, just like we don’t want to have a single tenant or any single property that can sort of wipe out our wholes business.”

Now, Mark focuses on not only diversifying his investments, but also his passive investors. He said, “every deal we do, we have the ability to raise all of the funds from these large, big-pocketed family offices, but we specifically chose not to (for two reasons). One, so that we can keep relationships with our friends and family and other investors who have been with us for a long-time, but two, to meet new investors.”

With the 506(c) offering, Mark is able to advertise his deals, which is the main source of his new investors. In our conversation on my podcast, he provided the 5 advertising methods he uses in order to find these new investors for his deals.

1 – Crowdfunding

Mark’s first method for obtaining new investors is through crowdfunding (click here for a crash course in crowdfunding). He said, “Every deal we do, we do a portion of it crowd funded, which is really nothing more than just advertising online through one of these third-party platforms for new investors. So it’s straight general solicitation out there, advertising on the website, and they advertise on other platforms. But they’re aggregating individuals who are interested in investing in real estate and putting our deal in front of those eyeballs. So every deal we do, we reserve a least a few hundred thousand dollars for that specific purpose.”

For a deal Mark is currently working on, he is using the platform CrowdStreet. However, he mentioned he’s used just about ever crowdfunding platform out there and doesn’t have a specific favorite.

The benefit of crowdfunding is that Mark finds investors that he wouldn’t have been able to find otherwise. “These are people that I would otherwise have never met in my life that are interested in investing with us, and some of them have already invested with us. It’s a great opportunity to grow your network of individuals that either might be interested or are definitely interested in investing.”

2 – Facebook

For a recent project, Mark opened up the deal to investors on Facebook for the first time. He said he’s trying out Facebook because, “We’ve heard in the past a lot of great reviews from friends about how they acquired investors that way because you can be super targeted. We know very clearly that 90% of our investors are 40 years and older, live all over the country but mainly in population centers of 100,000 people or more.” Educational attainment (college educated) and professionals (doctors, lawyers, executives, and small business owners) are also target criteria.

Related: The 4 Keys to Building Relationships on Social Media

3 – Newspapers

Mark also puts advertisements in the local newspaper. “We are also trying old school newspaper advertising because our investor base tends to be a little bit older. In some cases, we have investors 70, 80, 90 years old and newspaper still happens to be a very relevant source for those people.”

For a recent deal in Spartanburg, South Carolina, he took out ads in local papers in North and South Carolina. “[I’ve taken ads out in] markets that are very close to these areas. Charlotte’s an hour away. Greenville is about 45 minutes away. Charleston. Those types of things because people tend to like investing locally, even though long-term I think that’s a bad strategy, it’s a great gateway if they can drive by the property and see it.”

4 – Webinars

In addition to crowdfunding, Facebook, and newspaper ads, Mark also does webinars. In adherence to the “be everywhere,” “blanket/carpet” marketing strategy, he wants to advertise on as many platforms as possible.

Mark said, “The webinar was helpful because we get one-on-one questions. We get a bunch of people and interest built around that specific concept of hosting a webinar and you can record it and then send it to others, so it gives you sort of a platform and another contact point to reach out to people.”

5 – Referrals

Mark’s final advertising strategy is good, old-fashioned referrals. He said, “The referral [is] probably in everyone’s experience has been why you start with your friends and family, because they know you… If you perform for them, they will refer you to their friends and family, and so on and so on. That’s typically been the best source for us overall.”

When finding new investors through referrals, the most effective method is through social proof. Mark said, “What I’ll try to do is people that do know each other or people that don’t know each other, some of the family offices that didn’t know each other, I introduced them to each other. Now they know each other, so when I say, ‘XYZ family office is investing. Don’t you guys want to invest as well?’ they go ‘Oh yeah, of course. If they’re invested, we’ll do it too.’ So there’s a little bit of trying to get people in the same room or same social network of some sort, even if it’s just because I introduced them, so that there’s that social proof aspect where people feel obligated or inclined to invest because of someone else.”

Related: 4 Non-Obvious Ways to Raise Private Money for Your Deals

Conclusion

Raising money using the 506(c) offering allows you to publicly advertise for investors. The top 5 advertising methods Mark uses to raising money for his deals are:

  1. Crowdfunding
  2. Facebook
  3. Local newspapers
  4. Webinars
  5. Referrals

Want to learn more about passively investing in apartment syndications? Visit the Best Ever Passive Investor Resources page, the only comprehensive resource available to passive investor.

Subscribe to my weekly newsletter for even more Best Ever advice www.BestEverNewsletter.com

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.