Updated: Mar 7
You never know when an exceptional multifamily deal will come across your desk. The truth is it could happen at any time, and when it does there are a lot of things you’ll need to do. I can tell you from firsthand experience that you’ll have more to do than you can handle.
I’ve found that many new syndicators seem to make some of the same mistakes when trying to raise capital, so I’d like to share what they are and offer you some ways you can avoid them.
Mistake #1: Raising Money Only When You Have a Deal
One of the top 5 mistakes to avoid: starting to raise money only when you have a deal. If you haven’t been actively raising money before this deal came to you, you’re going to be frantically scrambling to find investors and raise money. Unfortunately, raising money in a hurry is problematic.
Potential investors don’t really know your track record or abilities, and it takes time to build a relationship with them. If you are new to syndication and reaching out to your network to raise money, it takes time for the people you know to see you as a syndicator and change their view of what you do now. People simply need time to digest your new business. Hence, reach out to your network and talk with them about what you do now ahead of time.
When I started syndicating, I found that some people didn’t know what syndication was and how it worked. If you reach out to people months before you have a deal, it will help to educate them and allow them time to learn about it. The time that you don’t have when you already have a deal under contract. To educate potential investors, you have to sit down with them and explain the passive investment process, how it all works, and how you make money as a syndicator. If you do all of this before you have a deal to present, then you won’t have to worry about running out of time to fund a deal.
I’ve found that it’s essential to have an online presence, including a website and a social media plan that includes posting on Facebook and other social media sites, or consider having your own podcast. This will expand your contact base and put you face-to-face with new potential investors.
Just remember to do it all before that exceptional deal crosses your desk! When you do have a deal you want to share, go back to your contacts that you’ve spent time with and share your deal. They already know you, so it will be a lot easier.
Mistake #2: Raising Only the Amount of Money Needed to Close the Deal
Let’s say your deal is for a multifamily property listed at $6,000,000. Don’t be tempted to think that you only need to raise 20%-25% of the down payment to close the deal. Yes, it will be enough to seal the deal, but what about deferred maintenance, renovation, and other projects? ( That can include large unexpected repairs, for example, like finding out you’ll need a new HVAC system or a new roof, which can cost upwards of $500k plus).
In addition, some of the investors who expressed an interest will end up backing out, and having an excess or reserve will help fill in the amount you lost. Your 20% cushion will help weather that storm.
Mistake #3: Not Knowing the Law