Many real estate investors are eyeing syndication as a lucrative next step. If you’re thinking about sponsoring a passive investing partnership, syndicate expert Bruce Petersen has hard-earned wisdom for you. Bruce is the founder and CEO of Bluebonnet Asset Manager LLC and Bluebonnet Commercial Management, focusing on multifamily property investing and management. He’s also the author of “Syndicating Is a B*tch”. A recent guest on the Joe Fairless Best Ever Show podcast, Bruce discusses the power of mentorship and other tips to make your launch into syndication a success.
About Bruce Petersen
Bruce is a late-blooming entrepreneur who found syndication after 20 years in retail. At 43, burned out from 100-hour weeks, he took a break to evaluate what to do next. After researching real estate, he found an excellent mentor, a relationship that changed the course of his life. His mentor was a buyer’s broker for multifamily properties. Soon Bruce had purchased his first syndication property, which yielded an impressive return. He was hooked.
Since then, Bruce and his wife Stephanie, who serves as CFO, have acquired multifamily properties in Texas. Their goal is to provide an exceptional living experience for tenants from all walks of life. Bruce also serves as a mentor and educator. He recently released “Syndicating is a B*tch”, a book that tells the raw truth about syndication’s difficulty and challenges.
Find the Right Mentor
If you’ve considered a formal mentor but think it’s too costly or sensationalized, Bruce has some advice. His mentorship with the multifamily broker catalyzed his success more quickly and professionally than he could have achieved alone. Why reinvent the wheel when experts have already created it? Your effort will net a higher return if you leverage their knowledge and experience.
Bruce notes that mentorship has gotten a bad rap in the business due to hucksters who hype themselves as gurus of a lavish investor lifestyle. These people are not mentors. Good mentors walk the walk, are successes in their field, and have verifiable track records. They are honest about what they offer you and don’t overpromise.
Mentorship Is Cost-Effective
Most mentors charge for their services. If you balk at this, says Bruce, consider the cost of a college education. People often spend $50,000 or more as undergraduates and $200,000 or more with graduate or professional school. Then there’s the opportunity cost of four to 12 years of lost endeavors and income. Ultimately, many people end up in jobs they dislike or didn’t prepare for.
In contrast, the right mentorship can teach you how to run a lucrative business you’ll enjoy. Syndication is hard and full of unforeseen challenges. If you’ve never done it before, you’ll encounter obstacles you’re not prepared to manage. A mentor will coach you on all aspects of the business and slash your learning curve to self-sufficiency. Bruce’s bottom line: “You do need a mentor. Don’t do this alone.”
Find Your Investors First
Bruce notes that many new investors ask if they should find property or raise financing first. Though you may be eager to hunt for the ideal multifamily, he advises starting with the money. It’s too easy to get to the table without your financing locked. Think about it: This happens all the time with primary residential purchases. Syndication has significantly more risks and variables.
Meanwhile, you’ve tied up the property for one or two months, and people will remember that. If you withdraw from a deal at the last minute due to a lack of funds, word will spread that you can’t deliver. You’ll be just another enthusiastic greenhorn who didn’t prepare.
Raise Twice the Money You Think You Need
According to Bruce, you should raise at least twice as much financing as you think your property will cost and preferably three times as much. For example, if you’re targeting a $500,000 cash property, plan on raising $1 million to $1.5 million.
Over raising can be a tough sell to prospective investors but will likely save the deal. You should assume at least half of your pledged investors will bail. Some may have personal situations arise, while others may get cold feet. Build this likelihood into your financials, and it won’t derail your plans.
If you’re contemplating your first deal, consider these typical costs in your estimate:
- Down payment
- Closing costs
- Rehabilitation costs not covered in the loan
- Operating expenses
Then double or triple that total to arrive at your investment target.
Get Out There
Real estate investors are like successful salespeople: They need good personalities. You are selling potential investors on your opportunity, but you are selling them on you most of all. If they don’t like you or smell an ethical rat, they’re gone.
Bruce describes how he told one excited man at a syndication event to find another venture. Why? Though the man could finesse spreadsheets and was motivated, he was a self-described jerk and misanthrope. According to Bruce, that’s a deal-breaker.
You don’t need to be an extravert, but you do need to meet people and have them like you. Bruce found the investors for his first deal from a meetup group he started. He had no experience or even a job, but the members got to know him over many months.
If running groups doesn’t suit you, there are many existing ones to join. Bruce suggests attending events from experts such as Joe Fairless, Jake and Gino, and Michael Blank to network with like-minded people.
You’ll also learn a tremendous amount by immersing yourself in the world of passive investing. Many groups and events feature free or low-cost training in webinars, videos, books, and more. Simply by interacting with people, you will learn from their experiences and stories. They, in turn, will learn from you.
Lead With Your Best Self
Here are Bruce’s straightforward tips for networking success. If you’ve dealt with pushy colleagues who were all flash, you know these bear repeating:
- Be genuine
- Dress the part
- Present dignity and confidence
- Keep your ego in check
Know Who You Are
When you watch Bruce captivate a large audience, you might assume he can command any networking situation he encounters. The truth, he says, is that he’s an introvert who dreads working a room. Having to start small talk with strangers leaves him frozen and awkward. Instead, he lets his wife engage people, and then he joins the conversation. On the flip side, Bruce is a natural on stage, whereas his wife avoids it.
The takeaway is to know who you are, play to your strengths, and manage your weaknesses rather than pretend they don’t exist. Networking is the backbone of real estate investing, so if certain social situations make you uncomfortable, don’t avoid them. You could be leaving valuable contacts and information on the table. Instead, find a way to adapt gracefully.
Present Yourself Professionally
Dress the part, as strangers will remember your first impression. Bruce is not a fan of the image of the “millionaire next store” in cheap clothes. Instead, he suggests dressing at or above your means to project confidence and professionalism.
This attention to presentation doesn’t mean overspending to achieve an image. Such overreach financially sabotages your goals and ultimately undermines your self-confidence. However, you do want to appear you belong in the room. Some creative shopping can net you a well-priced and polished wardrobe. Don’t forget other basics such as professionally printed business cards, quality accessories, and a clean car.
Be Honest About Your Experience
Many people wonder how to present themselves to potential investors if they have no experience. If you lack experience, say so. You want to be transparent, Bruce notes, but confident. Every investor out there started somewhere.
You should offer people a solid idea of the type of property you plan to purchase and why. Have your elevator speech ready just as you would for a traditional job. For example, “I’m targeting a 30 to 50-unit multifamily property in Raleigh, built between 2000 and 2010.” As the conversation continues, you can explain why.
Be mentally prepared for rejection. Some potential investors won’t like your inexperience, your approach, your personality, or your shirt. That’s their prerogative, so stay calm and move on. When starting out, Bruce once had a man laugh in his face. Bruce expressed his understanding and politely excused himself to meet others in the room.
Is Syndication Right for You?
The syndication investor lifestyle isn’t for everyone. You need confidence, good people skills, and an entrepreneurial spirit. You should also have grit and the humility to learn from others. In this business, you will encounter shockers you couldn’t make up. As Bruce notes, we are living in an era of black swans, so expect more of those, too.
Bruce points out that there are many ways to make excellent money. You don’t have to choose syndication or even real estate. However, if you decide syndication is for you, then leverage the quality resources available to create your roadmap.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.