How to get investors

Hypothetical of course.....

But lets pretend I have 3 years of underwriting experience in CRE at a BB ... go to Columbia MSRD and want to start developing/investing in multi family.

How exactly would I go about getting investors to do so?

 

Friends and family, syndicating to HNW families, country club money. 3 years is nothing in our world, so an institution or any sophisticated investors won't touch you at that point. Don't take this the wrong way, but even with three years of brand name experience and a good MSRED degree you will still be a nobody to most people. Therefore, why would they trust you with their money. You'd have to bootstrap for a few years, work your ass off to find capital, build your track record, not lose money, and basically eat a lot of risk for many years before people will trust you. It can be done, but you have to be willing to grind and take the risks, and even then if you have bad timing despite being smart you will still get fucked.

P.S. I suck at commas. This looks like an epileptic James Joyce piece.

 

I'm actually working on something small right now, and looking at doing exactly this. I have a few connections through parents/friends that I can get capital through, but the most important part of it besides the lack of track record is exactly what you said about risk. Even if I'm the smartest guy in the room, even if my pro forma is perfect, my contractor delivers on time and under budget(......), and I've got all the right tenants lined up: timing can still fuck you. I think we're getting late in the game(cycle) to get onboard this train, so if I can't get the right parcel under contract in a month or so I'll move on to some other crazy idea, but if you can get lucky and time things right(helps to have experience), you'll KILL and have plenty of capital going into a down market.

The hard part about getting investors is showing them you're trustworthy and know what you're talking about. Say I'm a doctor, I've got high single digit millions in the bank so I can put some cash into something risky. "Oh, you've been in RE for 3 years huh? Masters? Real nice. It took longer for me to finish med school let alone my residency, why the fuck should I give you my money?" I've had pretty much that exact conversation. The hard part about convincing HNW people to invest in you without a previous and/or familial relationship is that they generally didn't become HNW by being retards. If they're doctors, fine, they got lucky in the market and saved their money well, but if they're business people that founded companies and bootstrapped themselves you're going to end up with some tough questions. But if it was easy, anyone would do it.

 

After doing some early to mid-stage fund-raising, I would say an important general piece of advice is to work extra hard in getting a solid, early investor. Essentially an anchor investor. This usually signals to the rest of the investors you have a good opportunity. Put extra effort to get such an investor (e.g. you can give them better terms). You'll often find the first one is the hardest, but the rest seem to just "fall into line."

An early stage anchor investor can also help out in other ways. Anchor investors often have friends interested in investing who they'll refer you to (such referrals are generally easier closes). They also can serve as references to other investors as other investors will trust them more than they trust you (you are after all trying to pitch them). This is especially helpful if the anchor investor has previous experience in the area and can vouch that you have a good investment opportunity based on their past experiences.

 
Best Response

If you have 3 years of underwriting experience, go to Columbia's MSRD, and want to get investors, you need to:

  1. Have friends/family that are rich AND stupid. It can't just be one or the other.

or

  1. Get another 17 years of experience.
  2. Network hard for those 17 years.
  3. Hopefully still have rich friends or family, although they don't have to be dumb anymore
  4. Time the market correctly
  5. ???
  6. Profit

It is incredibly hard to obtain smart capital without a long track record, and even if you have that track record there's no guarantee.

Commercial Real Estate Developer
 

I completely understand what you guys are saying that three years is not enough experience and I appreciate the feedback. I am however in a unique experience. My immediate family member develops customs multi million dollar homes. My idea is that I will get the professional credentials (Underwriting experience, MSRD, buy side experience) and use his experience as a developer (he did not graduate college but just finished his fourth project and is estimating a profit of $1,400,000 on this project) and start to transition away from single family custom homes into residential multi family developments.

Do you believe that this is a partnership that would potentially attract investors... I am not looking to wait twenty years to get serious capital. I was hoping 5-7 years

 
ISellMoney:

I completely understand what you guys are saying that three years is not enough experience and I appreciate the feedback. I am however in a unique experience. My immediate family member develops customs multi million dollar homes. My idea is that I will get the professional credentials (Underwriting experience, MSRD, buy side experience) and use his experience as a developer (he did not graduate college but just finished his fourth project and is estimating a profit of $1,400,000 on this project) and start to transition away from single family custom homes into residential multi family developments.

Do you believe that this is a partnership that would potentially attract investors... I am not looking to wait twenty years to get serious capital. I was hoping 5-7 years

You have the right idea (and the third option that I forgot to mention) but your execution might be a bit off. The third option is of course finding someone super experienced to partner with. Typically, they bring the money, you do most of the work, and you gain the access to capital while they gain developer-like returns without spending the time (and sometimes without taking the risk).

Whether or not your specific situation will work will come down to your immediate family member's investors. If they're cool with this family member partnering with a young person and switching from single family to multifamily (completely different product types. completely different.) then yes, you can find success. The investors might balk at your inclusion or at the shift in business model, however.

Commercial Real Estate Developer
 

I'm going to take a different opinion. While I do thin being at the right place at the right time will help a ton, it also depends what you're offering the market. To the side of the right place, right time, there's a number of developers in DC that have gotten rich because they started flipping houses in 2009/2010. By this point they've moved on to bigger and better, but none of their principals were extremely experienced prior to starting out on their own.

Similarly, my old boss launched his firm around 2006 and offered a different option to investors than apartment,/flips. He had virtually no acquisitions or operational experience and had been very successful, first attracting some PE money then institutional funds. He has always offered favorable terms to his investors and now understands what he's doing better than when he started. He raised friends/family and country club funds to start.

 

I assume you have investors but you want to know how to get them to invest?

The key is to bring them deals. That's the hardest part. I see brokers partner up and/or syndicate all the time. They'll wrap up a deal with some upside, and put their commission into the deal. This is a watered down scenario, but it does happen.

Find deals...

There is a large metals recycler down here in SoCal that has a lot of cash. They lent a client of mine about $3mil on some industrial dirt. My client is paying off the private debt shortly. The deal I cut with my client, the borrower, is that upon ordering of the payoff they will introduce me to the private lender who is sitting on $50mil or so. The private lender wants to deploy his $ and needs deals. I have the deals (loans) and am a direct referral.

$50mil may not sound like a lot to you institutional guys, but if I could churn $20mil every 24mo, that's $200k a year in loan fees earned by having one client lend out 1/3rd of their cash.

Deal sourcing earns clients. So do many other things but the deal is first.

 

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