Updated: Jan 9
The lifeblood of a Sponsor is the ability to raise capital in order to fund real estate deals when the opportunities present themselves. Without capital, you’re basically out of business as a syndicator. No capital - no deals! There isn’t any other way to say it.
The best place to start looking for capital when you have limited experience is with people who know you and trust you, which come down to your friends and family. Nobody knows your abilities better than they do. They also know your work history, your successes and your passion to get deals completed. So that’s the first place to start.
But how do you approach people you know and ask for money? After all, some people may think you’re crossing the line when you take friendships and family relationships and use them as to secure funding. The fact is, you’re not crossing any “line” at all, but rather you’re providing a chanced for those people you care about to participate in an opportunity to make money.
Also, be sure you follow the rules about accredited and non-accredited investors, and be sure to explain it to your friends and family. Accredited investors usually earn $200k per year or have a net worth of $1M or more. You’re allowed to solicit funds from up to 35 non-accredited investors, but make sure you don’t exceed that number.
Step 1: Prime Investors
When it comes to soliciting funds, don’t wait until you have a deal in hand to offer someone. Instead, be preemptive and start engaging your friends and family early - in fact, the earlier, the better. Here’s why: once you have a deal in hand, you’re not going to have a lot of time to raise money. If you engage everyone early and get firm commitments to participate with you, you’ll be ready to package the deal and move forward.
Always outline the financial options available and anticipate questions that friends and family will be asking. here are some of the most common questions I got when I just started syndicating, and you should prepare to answer them as well:
1. Are you doing it on your own?
2. Who’s else is on your team?
3. What is a syndication and how does it work?
4. What markets are you going to invest in?
5. What will be your business plan?
6. What returns should I expect?
7. What is the minimum investment?
8. Can I participate even if I’m not an accredited investor?
It’s all about building awareness with your targeted audience that you are now in the real estate syndication business. As a Sponsor, you’re going to be the one telling your friends and family that you have found the ideal opportunity for passive investors. By preparing them for this, you’re changing their mindset about you, fostering credibility and demonstrating that you have the business acumen to do what you say you can do. This will pay handsomely as you start marketing your deals.