It’s important to know how much money is coming in the door when you are raising money to buy a deal. If you need to raise $5 million and fall a few hundred thousand dollars short because, closing the deal is in jeopardy.
Here is the reality, you work hard at raising the money for a deal and get to your goal dollar amount. You’re excited! All that hard work paid off and now you can buy that large apartment building that you have under contract. All the legal work is in, due diligence is done and closing is coming up in a few weeks. You send an email to your investors to get them to sign the subscription agreement and wire the funds. There’s a problem though. A few of your investors that said they would invest, no longer are able to invest.
Most sponsor say raise 30-50% more than what you need. That will solve the problem with the scenario above. While I agree that it is good to over-subscribe your deals, I think it’s even better to get investors that are going to commit.
Educate early and often
Prior to even sending investors your deals, educate them through Blogs, podcast, meet ups and newsletters. Give them information on what you are doing and on what is going on in the market.
Have a 1 on 1 phone call with prospective investors prior to ever sending them a deal. Not only is this important for building a relationship, but it’s important to ensure you’re following the SEC rules.
Along with the phone call I send them a sample deal package, with a full business plan, PPM, underwriting and Q&A. I also put the on my monthly/quarterly email list, educating them about the market and our company.
Giving the best presentation:
When you get a property under contract it is important to formulate a strong business plan and detailed underwriting. You will use this along with a slide deck (Power Point) to present the investment to your investors in a webinar. Our webinars include:
- Video walk of property with Drone footage
- Google Earth
You need to tell a story. Let the investors know exactly what you’re doing to the property and why that is important. Tell them about the city and neighborhood and why they should feel great about investing in the property. You want to make them feel like they’ve been there and could live there. Spend 30 minutes on the story and 5 minutes on the numbers, followed up by a Q&A.
Provide PPM and business plan asap
It is important to send your investors the PPM, business plan, underwriting details as soon as possible. If you have this information before or right after the webinar that is best.
- Allows investors to ask questions
- Allows you ample time in case they back out
- Allows investor time to seek their own legal counsel
Contact each investor
Each investor that commits needs to have a phone call or email (prefer phone) from you or your team. This allows you and them to ask questions.
Recap the story again. Let them know that your excited to partner with them and are looking forward to closing on the investment.
Send out emails with details. Don’t let more than 2 weeks go by without giving them an update. It can be as simple as telling them that everything is still on track to close on time. Give them details and clear communication. Doing so allows you to give them a sense of professionalism and keeps you top of mind
Get it in writing
I ask my investors to sign up through our Syndication Pro online portal right away. When the PPM is ready to go, I make sure that is also ready to sign. Signing documents helps further cement commitments.
- Communicate the importance of them being serious
- Get them to sign the investor docs within 7-10 days of receiving the PPM
Fund at least 2 weeks prior to closing.
- Consider funding earlier and giving 1-2% interest prior to closing
- Once the money is in they are nearly 100% committed
Recommend IRA custodians to your investors that you trust. Work with the IRA custodians and investors to ensure that everything is being set up. Stress to the investor the importance of engagement with the IRA custodian early and be in a position to help.
Common Raising Money Mistakes
- Not building your list and assuming the deal finds the money
- Assuming all your investors will invest
- Not over subscribing
- Raising too little (not enough reserves and/or capital expenditures)
Recap: Getting 95% of your soft commitments to invest
1. Educate Early and often 2. Sound presentation
3. Provide documents right away
4. Contact each investor (consistently) 5. Get it in writing
6. Fund Early
Bonus: Communicate with IRA’s
To your success!