Updated: Mar 7
The COVID-19 pandemic has thrown the country into an unexpected recession. According to financial experts, the current recession started in early March. Unlike the great recession of 2008 which started in the financial markets, the current recession is due to a public health crisis. The current recession is considered the deepest since World War II, but because the economy was strong going into it, it will probably be one of the shortest recessions as well. The faster the U.S. can bring the virus under control, the faster the recovery will be.
While the pandemic is causing problems around the country, syndicators are still looking to purchase multifamily properties. Raising capital in a recessionary period is not easy, but it can be accomplished if you act right. I’ve heard people say, “Find a good deal and the money will come.” That isn’t true now, nor has it ever been, and that includes raising capital during a booming economy.
I’ve put together a 5-step process that I use to raise capital during a volatile market. I’m sharing it with you in the hope that it will help you raise the capital you need for your next deal.
Step 1: Always be Raising Capital
If you only engage investors when you have a deal to share, you probably won’t come up with the capital you need. I’ve learned that you should always keep an open line of communication with your investors and prospective investors, constantly building relationships with them. That way when you do have a deal to share, they are more likely to invest with you.
You’ve often heard the expression “out of sight, out of mind.” It’s especially true when working to build relationships with investors. You also have to remember that other syndicators are constantly trying to reach out to your investors. That’s why you have to be constantly present so that they don’t end up jumping ship and going with someone else. It’s just good business sense, and it’s why you should always be raising capital.
If you reach out to investors on a continuous basis, you’ll build top-of-mind awareness with them. Share recent deals you’ve completed, projects in progress, or other news of interest to investors. If you have a website and are posting blogs, email the investors with the current topics you’ve posted. The point is, when a deal does come along, you won’t be coming at the investors out of nowhere, as you’ve been communicating with them all along. They’ll be far more likely to respond than if you hadn’t been in touch all along.
Step 2: Address Investor Concerns
You should always address concerns that investors have and be open and honest with them regardless of the topic at hand. Don’t hope that your investors won’t be thinking about what could possibly go wrong, because they are. The COVID-19 pandemic is on everyone’s mind right now and is in the news constantly. Address the main possible concerns they might have right away, before they even have a chance to express them. It’s a lot more powerful when you own the situation and address possible objections, than react to them after they have been expressed.
Some key issues you’d want to address are “why invest now, during the COVID-19 pandemic?” Or, “what if we can’t raise rents once we acquire the property and do our value-add improvements?” Another one to address is, “what are the main issues or problems that we might face?” You get the idea. By addressing all of the issues upfront it helps you build credibility and trust, making investors more likely to invest with you when you have a deal.
Step 3: Be Creative