For those who are interested in learning how to raise money for real estate investment opportunities, the most important question you must know the answer to is what’s the primary reason people passively invest deals?
I closed on my first apartment syndication deal in February 2014 where I raised over $1,000,000 from passive investors. Before that process started, I thought the primary reason people would invest in my deal would be because of the returns, whether is was cash-on-cash returns, internal rate of return, equity multiple, or simply an annual amount.
But I was dead wrong. Yes, returns are necessary and part of the equation, but returns can be provided by any number of other general partners and through any number of investment avenues.
Want to know what I discovered? People invest not based on returns but based on trust.
They trust you as a person. They trust you as a businesswoman or businessman. And, as a result, they trust you with their money. They know you or they know people who know you and can vouch for you.
If you want to successfully raise real estate investment capital for your first apartment deal, the question you need to reflect on is how can you gain trust from potential investors? To help you get started, here are three ways:
Related: What is Apartment Syndication?
It takes time to establish a relationship with investors. For your first syndicated deal, you most likely will have investors who have known you for at least a couple years. You just don’t have the track record yet. Once you establish this, it will be easier to get strangers to invest with you because of your proven track record (read here for more on the skills you need prior to raising money).
The more expertise you have (see way #2 below), the shorter amount of time you have to know those who provide real estate investment capital. For my first $1,000,000 raise, I knew all of the investors (none are family members, btw) for a period of 2 – 10 years. But, the more experienced I got and more deals I closed, the lower that window of time became. In fact, after growing my portfolio to over $100,000,000 (and the subsequent lessons learned), I am to the point now where I attract investors whom I’ve never even met in person.
The more expertise you demonstrate, the easier you can raise the money. BUT, WAIT. There’s a big point.
You MUST demonstrate the expertise in a way your potential investor understands. Who cares what you know. It’s about what’s relevant to your investors and how you communicate it to them.
A doctor needs the info communicated differently than an engineer than a small biz owner than a person who has invested in real estate before. The key to your success is recognizing how to communicate the information to each audience based on their background and needs.
By the way, it’s possible to display expertise even if you haven’t done that specific thing you’re raising money for. That’s what I did for my first money raise.
I had never purchased an apartment community prior to raising money to buy my first deal – a 168-unit complex. But, I did have relevant experience in real estate. I had a portfolio of single family homes and taught classes on how to invest in real estate. That experience, combined with me aligning with more seasoned team members (mentors + property mgmt. company), allowed me to qualify in the expertise category.
Another way to begin building credibility as an expert (and gain more real estate investment capital) is to create a thought leadership platform. For example, here’s how Kathy Fettke leveraged her thought leadership platform, a podcast, to raise $5 million in one week! Other platforms besides a podcast can be a blog, a YouTube channel, a newsletter, an ebook, or a meetup, but there are numerous other ways to become a thought leader. Be creative and find something that complements your strengths, unique abilities, and of course, that you like to do!
3. Personal Connection
The thought that people only invest with their analytical mind is bogus. We invest with emotion. We go in with preconceived notions about something then we tend to look for things that validate that notion.
Try this exercise I learned from Tony Robbins. Look around your room and, for the next 30 seconds, find everything that’s red. Look red. Find red. Look red. Find red.
Now, write down all the things you saw in the room that are blue.
While looking for red, you probably found stuff that was reddish brown or orangeish red but counted it red. And we don’t find stuff we’re not looking for.
The point is we find what we seek. And those who provide real estate investment capital do the same thing. If they have a preconceived notion about you and the investment, they’ll look for ways to validate that. So, the key is to establish a solid personal connection with them.
This can be done by knowing what they care about and seeing if you can align with that in a genuine way. Don’t know what they care about? Ask them this magic question:
“What’s been the highlight of your week (or weekend)?”
That will uncover some things that are top-of-mind for them. They might say “making a business transaction” and that will tell you that it’s important to focus on the #s and profitability more so than other conversations. Or, they might say, “finally being able to get away with my family” and that will tell you that time is precious and perhaps you should play up the “passive investment angle” with them.
Want to learn how to build an apartment syndication empire? Purchase the world’s first and only comprehensive book on the exact step-by-step process for completing your first apartment syndication: Best Ever Apartment Syndication Book.
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.