I’m convinced that apartment building investing is the SINGLE BEST real estate strategy to get out of the rat race in the next 3-5 years. The problem is that most people think that they need tons of their own money to get started with apartments.
And it just not true.
In the next few minutes, you’ll learn the 7 Steps to Raising Private Money for your First Apartment Building Deal to get financial commitments from investors long before you get a property under contract.
Having your investors committed before you even put a property under contract is critical when syndicating apartment building deals. Without upfront commitments from investors, you won’t be able to submit offers confidently and it will be difficult to get the money in time to close.
OK, without any further ado, here are the 7 steps to raising money for your next multifamily deal.
Step # 1: Create a Sample Deal Package
The secret to getting financial commitments from your investors long before you have your first deal under contract is to … make a up a deal.
You “make up a deal” by creating a “Sample Deal Package”.
This document contains everything about your fictitious deal including photos, information about the building and area, actual financials, your business plan, projected financials and returns. You will use this Sample Deal Package to speak with potential investors. You can even use it to build credibility with other professionals you’re trying to recruit to your team (like commercial real estate brokers, lenders, insurance agents, attorneys etc).
The difference between a Sample Deal Package and a real one is that all of the information about the deal is accurate (photos, location, financials, etc), except that you don’t have it under contract. The other difference is that your fictitious purchase price may be lower than the asking price so that you achieve the desired returns for the investors. In other words, you approach your potential investors with a deal package that looks like the real thing.
How to Create a Sample Deal Package
If you have not yet downloaded my ebook “The Secret to Raising Private Money to Buy Your First Apartment Building”, then do that now. It shows you exactly how to create a Sample Deal Package, and in fact, it contains an example in the Appendix.
Creating a Sample Deal Package allows you to get started NOW with apartment building investing. It allows you to better visualize your deal, gives you the confidence to make offers, and secures commitments from your investors long before you put your first property under contract so you can close on time.
Now that you know the Secret to Raising Private Money using the Sample Deal Package, let’s use it to approach potential investors.
Step # 2: Create a Mind Map of Your “Top 20”
The second step in the money-raising process is to create a list of people you know.
Take a piece of paper and create bubbles for each social group you’re part of: family, friends, neighbors, co-workers, boy scouts, sports, hobbies, church/synagogue, etc. Then under each bubble, write the name of each person you know in that social group.
Many people don’t think they know anyone who could help, but after doing this mind map exercise they’re surprised how many people are actually in their sphere of influence.
Now transfer that list of people into a spreadsheet so that you can track your activity with them.
The goal here is to become more intentional with your relationships and your conversations. That means whenever you speak to someone, you do so in a natural way but when the opportunity arises, you may steer the conversation to apartment building investing.
The mind map helps you identify the first list of people to contact. Pick your “top 20” and begin to reach out to them.
Let’s talk about the best way to do that so that you get a series of “yes’es”.
Step # 3: Talk to EVERYONE and Get a Series of YES’es
Many newbie syndicators make the mistake of trying to get a potential investor’s commitment to invest too early. I’ve seen too many eager syndicators approach their circle of influence like this:
“Hi, Frank! I’m getting into apartment building investing, and I’m looking for investors. The minimum investment is $25K, and you can get a 10%-15% return on your money. Are you interested?”
The problem with this approach is that it’s too direct and will likely lead to a “no” that then becomes a dead-end. And you only have a finite number of people in your circle of influence. You don’t want a series of dead-ends; you want your circle of influence to introduce you to as many new people they know as possible.
You want to EXPAND your circle of influence.
The Better Way to Get to a Series of “Yeses” to Expand Your Circle of Influence
Instead of going for the close early on, try to get introduced to as many people as possible. Focus less on the money-raising part and more on building relationships.
Here’s what this conversation might sound like when you speak with a friend or acquaintance:
“Hi Frank, I’m getting into apartment building investing. I think it’s really going to change the life of my family. Would you mind taking about five minutes so I can tell you more about it? I’d really like to hear your feedback!”
Your friend will probably reply, “Sure, whatcha got going on?”
Now you have your first “yes.”
You might continue, “It’s pretty cool. I’m looking for buildings with about 15 units, and I’m going to buy it with investors. The minimum investment is $25,000 per investor, and they’re getting a 10%-15% return per year on their money. They can invest with cash, of course, but also with their IRA or 401(k). Would you happen to know someone who might be interested in a five-minute phone call to talk about this more? [Even if you don’t think they have the money, they might know someone.] So at this point I’m just looking for anyone you think might be interested in taking a phone call with me.”
Your friend might say, “Yeah, I might be interested!” And BINGO, another yes.
Or he might say, “Well, my boss might be. He’s been talking about investing in real estate, and I think he bought a rental a little while ago.”
You: “That’s great. Would you feel comfortable in asking him if he’d be interested in a five-minute phone call with me?”
Friend: “Sure, I don’t think that would be a problem.”
Instead of asking for any kind of financial commitment, all you’re asking for is a five-minute phone call. Because they presumably know and trust you (at least to some degree), your friend or acquaintance will do you a favor of introducing you to someone else they know who might be interested.
Even if they think that person doesn’t have any money.
Remember: you want to expand your network and build relationships. That’s your first priority, raising money comes later.
Always follow these steps:
- Talk to everyone and don’t discriminate. Often it’s impossible to tell who has money and who doesn’t. It’s amazing how much “little old ladies” have stashed away in their IRA accounts. Similarly amazing is how little money the flamboyant stock broker neighbor next door has to invest in anything besides his boat and second house.
- Always ask for referrals and follow up with them.
- Mention the minimum investment. When you invite someone to that first meeting that you say what the minimum investment amount is. Otherwise, if you’re looking for a minimum $50,000 and the person only has $10,000 to invest, you’re wasting everyone’s time. By the same token, if the other person accepts the meeting, then they’re implicitly saying that they are capable of and potentially interested in investing at that level.
Once you feel it’s appropriate, ask the person to meet with you to specifically talk about potentially investing with you. Here’s how to ace that first investor meeting.
Step # 4: Set Meetings with Potential Investors
What do you want to accomplish with your investor meeting? Ideally, you should get some level of financial commitment from your investor. But before you do, you have to address their main concern.
An Investor’s #1 Fear Is Losing Their Principal Investment
Make sure you identify the main risk factors of your proposed deal and how you plan to mitigate them. If an investor hears that this is an “unbelievably safe investment without any real risks,” they’ll grow suspicious. You’ll be much more credible if you’re upfront about the risks and how you plan to address them.
Speaking of risk…
The Investor’s #1 Perceived Risk Factor Is YOU
You have two strikes against you as far as the investor is concerned. Firstly, he doesn’t know and trust you (yet) and secondly, you probably don’t have a track record (yet).
You will spend most of the meeting making the investor comfortable with you. Only then can you address other objections and discuss the deal itself (including how much money they’ll make). Your goal in the meeting, then, is to build rapport with the investor and demonstrate to him that you will be successful even though you don’t have a portfolio of successful deals.
Start By Sharing Your Story
Talk about where you were born, about your family, where you grew up and went to school. Your goal is to build rapport and sharing personal information like this will achieve just that. Chances are you’ll discover things you have in common.
Then describe your professional experience. Focus on your track record of success in whatever you have accomplished professionally, even if it’s unrelated to real estate. Your investor should be able to see that you tend to succeed in whatever you do. If you had a failure, you can turn that into a strength by talking about what you learned.
Talk about your passion in buying apartment buildings. Why are you interested? What have you done so far? Talk about your team. Talk about deals you’ve looked at so far but passed on because the numbers didn’t work.
At this point, you’ve done most of the talking, but that’s OK. You shared about your life and your passion about building long-term wealth for you and your investors with apartment buildings. If you’ve done your job, your investor will say that he knows you a lot better and has become more comfortable with the prospect of working with you.
It’s now time to shift the conversation to how you might do business together.
Here’s the Script
You: “I have a deal for us to look at. I don’t actually have this building under contract, but when I do have a deal, it will look substantially like this. I wanted to get your feedback on the terms and projected returns; would that be OK?”
Next, review the executive summary page of your Sample Deal Package with the investor, focusing specifically on the investor terms, not the deal itself (that comes a little later).
You: “The deal I’m looking for should produce an average annual return of around 15% over the life of the investment. This will consist partly of cash flow each year as well as appreciation. The minimum investment I’m looking for is $50,000. How interesting would that be to you?”
Investor: “That would be interesting to me. How long would the money be locked up?”
You: “I’m telling investors that they should be prepared to keep their money in for at least 7 years. This would allow us to build the value we’re looking for. I realize this is a long time. In order to address that, after 4 years I would allow an investor to cash out by offering to sell their shares to other investors though there is no guarantee that others would buy out the investor. The LLC operating agreement would spell out exactly how that would be done. How would you feel about that?”
Investor: “That would be fine. Would there be any cash flow distributions?”
You: “Yes. Typically, we will pay out distributions once per quarter. How would that work for you?”
Investor: “That sounds reasonable. What do you see as the greatest risks?”
You: “It would depend on the deal. I think the greatest risk is our ability to execute our business plan. We could fall short of our projected returns or it might take more time to achieve. For example, let’s say our plan calls for the renovation of half of the units so that we can raise rents by 30%. We would make sure we have the money in the bank account to fund the renovations. But maybe the tenants won’t move out as quickly as we think and it will take longer to raise the rents.
Having said all that, my goal with the first few properties we buy will be to keep these kinds of risks to a minimum. In other words, I don’t want a completely vacant building or a building with all kinds of problems. I’m going to look for a good deal for a relatively stable building.
Once I have a building under contract, I will outline the plan in more detail and identify the risks so that you can make a better decision.
Before we look at the Deal Package, what other questions or concerns do you have regarding the returns and terms we talked about so far?”
At this point, the investor should be relatively comfortable with you as a person as well as with the risks, returns and terms of the investment. If you’re just starting out talking with investors, don’t make it sound like your terms are set in stone. Rather, gather information from your investors about what they would (and wouldn’t) like if they were to invest with you.
Next, spend a little bit of time reviewing the Sample Deal Package itself. Don’t spend too much time because you probably don’t have too much time left in the meeting anyway, and the numbers aren’t for a real deal. But it should give the investor a feel for the kind of deal you’re looking for.
You: “Let’s take a few minutes and look at the Deal Package. Like I said before, this is not a deal I currently have under contract, but when I do, it will look a lot like this.”
Then briefly go through each section of the Deal Package just enough to orient the investor and answer any questions. Don’t focus on the numbers since these will change.
Finally, you want to close by describing the logistics of closing on a deal from the investor’s perspective:
You: “I appreciate your time today! Here’s what will happen next from my side. I’ll keep you posted and when I have a property under contract, I’ll email you the Deal Package. If you’re interested in investing, you just have to tell me the amount you’re interested in, and I will reserve that amount. Once I get commitments from all of the investors and the due diligence is satisfactory, I will instruct the attorney to begin the closing process.
You will receive an LLC operating agreement and a private placement memorandum. You sign the operating agreement and a subscription agreement that documents the investment amount. A day or so before closing, you wire the funds to the closing attorney.
My goal will be to send an email report to the investors once per month in the beginning, and once things have stabilized, I will send out quarterly reports with any distributions.
What questions or concerns do you have about this?”
Give them the Sample Deal Package to take home and schedule a follow-up phone call or meeting to discuss any questions or concerns.
Don’t skip this step! Make sure you address their concerns now while you still have time rather than waiting until you have a deal under contract and time is of the essence.
If you follow this process, it will be amazing how quickly you can get commitments from your investors once you have a deal under contract. If you do this upfront, it will give you the confidence to make offers on properties and secure the funds in time to close.
Step # 5: Stay in Touch
After this first meeting, it’s important that you stay in touch with the investor. Hopefully you have the first follow-up call or meeting scheduled to discuss any questions or concerns they might have. Ask them again if they feel comfortable in moving forward if you found the right deal.
After that second meeting, it’s very important to stay in touch with that person because you don’t know how long it will take until you have an actual deal. Send an email or call them at least once per month, give them an update and see what’s new in their life.
One thing you might consider is putting all of your potential investors on an email list (like Mailchimp) and send out something like a newsletter every month. That way, they’re used to hearing from you and it’s an easier way to stay in touch.
Step # 6: Sign a “Letter of Intent to Invest”
Once an investor verbally committed a certain dollar amount with you, I use something I call a “Letter of Intent To Invest”. It’s a short one page document that “formalizes” that commitment in writing.
The Letter of Intent is completely non-binding legally, but it does formalize their verbal commitment. In addition, you can use it as a form of a “Proof of Funds” letter later when you’re making offers.
You can download my “Letter of Intent to Invest” Word template by clicking the button below:
Step # 7: Expand Your Network (Here are 3 Ways!)
Once you’ve contacted everyone in your immediate circle of influence (and continue to cultivate those relationships), it’s time to cast a wider net. Here are 3 tips to expand your network of potential investors.
Tip # 1: Warm Up Your Cold Contacts
Take a look at your contacts list in Gmail, Outlook or whatever address book you use. Chances are, you have hundreds of contacts in there, but you’ve lost touch with most of them. Before you delete them, try to re-connect with them!
Here’s how to re-connect with your “cold” contacts:
- Import your cold contacts into a mail service program like Mailchimp.
- Send out a first email and apologize for how bad you’ve been about staying in touch. Give them a general update your life, and ask them for what’s new with them. You’ll be surprised how many people are delighted to hear from you! Boom, a new warm contact.
- Continue interacting with those new contact in a “natural” way, I.e. don’t start asking them for money but simply re-connect. This may take several weeks or months.
- For the other contacts who perhaps didn’t respond, continue sending out a monthly update. In future communications, you can be more intentional about your apartment building activities so that people begin to know you in that context
Continue this process until a person unsubscribes from your newsletter or you become re-connected. A cheap and easy way to expand your network!
Tip # 2: Network at Local Real Estate Investor Association (REIA)
One of the best ways to meet potential investors is at your local REIA. You should attend every REIA in a reasonable driving distance from you. Also go to meetup.com and look for local real estate meetups. There are usually several in your area, and if there isn’t one, then consider starting one. You should shoot for attending one networking event per week.
Tip # 3: Network on Bigger Pockets
Bigger Pockets is probably the largest online community of real estate investors. If you’re a Pro member, you can search for members in your area and send them a personal message. Start an online conversation, meet them at your local meetup, or start a new group for members.
There is no shortage of ways you can meet new people. Be creative and consistent with meeting new people.
Learning to Raise Money is a Game Changer
What difference does all of this make to your ability to get started with apartment building investing?
It makes all the difference.
If you use my Secret to Raising Money and follow the steps I just outlined in this chapter, you can get verbal commitments from investors before you have your first deal under contract.
And if you can do that, wouldn’t that enable you to make offers with more confidence?
Of course. In fact, it would give you a LOT of confidence.
Imagine if you had 5 investors who committed $50K to invest with you if the deal resembles the deal you showed them in the Sample Deal Package. That’s $250,000 behind you.
Wouldn’t that make a difference in how you spoke with brokers and sellers?
If you follow my “7 Steps to Raising Private Money For Your First Apartment Building Deal” you can make offers with confidence and raise money in days once you have a real deal. And once you do your first deal, you are 3-5 years away from replacing your income.
And therein lies the power of the Secret to Raising Money.
Now go out there and raise money!
If you’re ready to learn more about raising money to get started with apartment building so that you can replace your income in the next 3-5 years, then consider enrolling in my online course “The Ultimate Guide to Buying Apartment Buildings With Private Money“.
I will show you step-by-step how to do your first apartment deal so that you can achieve your financial goals. I’ll cover not only raising money, but how to analyze deals so that you can make offers with confidence and everything from due diligence to finally selling the building and everything in between.