In today’s time’s apartment syndication is on the rise; and it’s one of the most desired investment vehicles.

The market looks a lot different now then it did a few decades ago. Instead of apartment buildings being circulated amongst a small group of investors. It has become the norm to see everyday people buying and selling apartment buildings.

One of the reasons there has been a demand in apartment buying is due to the ease of building capital. Although there are other factors that go along with purchasing apartments, one of the hurdles to cross is raising enough money to fund the deal.

Within this article is everything you need to know about raising capital for you deal.

1.Become Familiar With the Jobs Act

Raising capital for apartment buying requires some general knowledge about security regulations. If your raising capital by yourself without a real-estate attorney, there could be some important laws that could cost you a lawsuit if you’re not careful.

Jobs Act

The (Jobs) Act was passed in 2012 by the Obama Administration, created to stimulate the growth of small businesses. In short, the law allows for securities/investment opportunities to be issued through the use of crowdfunding. Because crowdfunding allows companies to build capital and issue securities through crowdfunding. Companies like Go Fund Me and Fundrise were created.

Since the law was passed apartment operators within a 506 b security offering are now allowed to advertise publicly. For the first time, apartment operators are allowed to publically advertise deals through multiple platforms including social media.

The ease in the ability to raise capital draws people in with interest in becoming apartment syndicators and eventually buying apartments. This creates a market where there is are a vast amount of experience levels to choose from when it comes to looking for an apartment operator.

Regulation B

Regulation B has a few distinct differences from regulation c, the apartment sponsor must have an existing relationship with non-accredited investors. The apartment operator must use a three touch rule – either a meeting over lunch, phone conversations, or conversation in person. No particular order is needed, but any of the above needs to been done at least three times.

Getting to know the investor involves learning more about the investor’s needs, goals, and there current financial situation. In order to invest in apartment syndication the investor either has to be a knowledgable investor or guided by a financial advisor.

Just checking the self-certification box, or subscribing to an email list is not enough to say that you have a pre-existing relationship when in dought speak with a securities attorney.

If you choose to sell securities here are the general guidelines.

• Limit of 35 non-accredited investors, an unlimited amount of accredited investors(Net worth of $1 million net worth, $200,000 annual income, $300,000 jointly)
• Advertising this security is prohibited
• The issuer may rely on self-certification
• The issuer must have a pre-existing relationship with non accredited investor
• Must provide the non-accredited investor with disclosure documents

Regulation 506C

This security was created in 2013 and was another viable option to use when building capital. Regulation C requirement guidelines for investors aren’t as strict as Regulation B requirements.

Regulation C general guidelines

• Syndicators are allowed to advertise there deal publicly, (social media platforms, Internet marketing websites, etcetera.
• All investors must be accredited,(Net worth of $1 million net worth, $200,000 annual income, $300,000 jointly)
• Proof of investors accreditation must be verified

Taking the necessary steps to prove investors’ accreditation must be taken seriously. Cpa’s, security attorneys, or registered broker-dealers can be used to verify the investor’s financials to include: W-2’s, tax filings, bank statements, and credit reports. Having a general understanding of securities makes a world of a difference when choosing the right regulation to use when in dought seek a professionals opinion.

The main differences between the two are listed below

• Non-accredited investors can only invest in 506(b) regulations and are not allowed to invest in 506(c)
• Advertising is allowed in 506(c) not allowed in 506(b) regulations
• Limit of 35 non-accredited investors in a 506(b) only accredited investors are allowed to invest in 506(c) regulations no limit on investors

2.Create Rapport With Your Investors

Creating rapport with your network means everything when it comes to building capital for your project.

The number 1 thing that will cause an investor to turn away from your deal is a lack of trust. So, building a relationship with your investors is one of the most important steps in this process. Many sponsors have one goal in mind “Capital raising”; but there is so much more that goes into the process.

Every person that you add to your email list, and or meet at a seminar will not become an investor. Your goal should be first to provide help in any way, when it comes to real estate investing, regardless of whether or not you’ll receive anything in return.

Genuinely helping others and providing meaningful advice is powerful, and helps you create rapport with those individuals. In the future when a deal is in the pipeline it can be offered to those who you have a pre-existing relationship with. Because of the relationship you’ve built in the past, you’ll have a higher chance of them investing in your deal.

There are always deals to be had in the market, people will invest in a person they trust before they invest in a deal that looks good on a spreadsheet. That’s why it’s so important that you simply talk about your skillset and involvement in real estate investing so that when investing comes to mind they think of you.

During a networking seminar, a sponsor approached me and presented me with an apartment investing opportunity. I had no knowledge of his background or level of experience, for that reason I didn’t consider his offer, because “there was no relationship developed”.

3.Determine The Investor’s Needs

Every investor has different goals, having an understanding of where your customers are financially, and how comfortable they are taking risk should be your priority.

Take me for example, although I have a cash flow investing strategy I’m willing to take the risk if the opportunity presents itself. In comparison to my father who is well into his retirement age, and tends to have a safer risk-averse strategy.

Matching the teal to your investor’s needs will make them feel more comfortable with investing their capital because they know their goals are aligned with the property’s business plan.

Real estate investment strategies in comparison to the risk

4. Determine The Amount of Capital You’ll Need For The Deal

Before you start collecting funds from your investor pool, you’ll need to have an idea of exactly how much money you’ll need to raise for the down payment and the renovation cost. Having a set raise amount will give you a better idea of the minimum amount to collect from each investor and the total amount of investors you’ll need for the project.

For example, a friend of mine purchased an apartment in Dallas, Texas for $16.5 M, the down payment was 30%(4.9M) and the Capex budget was 1.35M. He ended up setting his minimum investment amount at 100k and raised roughly 7M from 77 investors. This amount was enough to cover the downpayment, Capex, and reserve funds.

Create An Email List

Creating an email list is a powerful marketing tool to use when you plan on raising capital for your real estate project. It helps you provide useful information and maintain a relationship with your clients. These are a handful of other reasons why you should start an email list:

• Other then a website you have full control over your list
• You can turn leads into investors
• Emails are personal
• Emails build trust
• Higher open rate compared to social media

With the emergence of social media platforms, email marketing may seem archaic. But it still remains one of the most powerful tools to use when it comes to marketing.

For business owners email marketing has an incredible (ROI), according to the Direct Marketing Association, email marketing sees a 4,300% return on investment for U.S businesses. So, when it comes to raising capital, exhaust all of your resources.

5.Friends and Family

So, you find the perfect deal, great location, numbers look good and the financing is in order. The only problem is “you don’t have the capital to close the deal”.

The first place most people start with is there immediate family and friends. Not only does your family know your level of expertise and involvement in real estate; most importantly they trust you.

Because of your relationship with friends and family, you’ll tend to treat their money as if it were yours. This makes you pay very close attention to ensuring that your deal delivers.

6.Place of work

If you work a W-2 job, then chances are you working a 40-hour workweek. When you think about it we’re spending more time with the people at work then we do with our own families. This presents an incredible opportunity to discuss what you do outside of work, whether if it’s buying properties, fix and flip, or wholesaling. Simply talking about it can reassure your colleagues that you’re experienced in your field.

When a deal arises, you can use your place of work as another avenue to build capital for your investment project.

7.Private Investors

Private investors are the network of people your working with to structure your deal: real estate agents, brokers etcetera. These individuals are always eager to get involved in apartment real-estate projects. As long as you have a relationship it doesn’t hurt to ask and see if they’re interested and making some additional income. Expect a lot of questions about the project, and your ability to deliver.

8.Crowdfunding

As mentioned earlier crowdfunding was introduced in 2013, although it’s still a new form of building capital it’s a powerful platform when raising capital for your real estate project.

Real state crowdfunding involves two main strategies for raising capital:

• Equity investments When Investors invest in commercial real estate or residential, they invest in the equity side of the deal. This provides the investor with a portion of ownership, a percentage of equity that the deal generates after the sale and quarterly distributions from rental income.
• Debt investments Investing in the debt side of the deal focuses on the mortgage; as the mortgage is repaid you’ll receive payments from the interest being paid off.

How to raise capital for your property

Crowdfunding platforms like realty shares make the process of raising capital simple and easy to understand. The steps below give you an idea of what the process entails:

1. Pick a Platform There are several reputable platforms to choose from such as Patch of land, ifunding, and RealtyShares.
2. Submit an Application Submitting an application of your real estate project along with the business plan and projected returns, allows the company to review the project and start the process.
3. Get Approval Once the initial application is approved, more information will be required in regard to the business plan. The company typically does a full background check as well as a credit pull on all of the operators involved in the project.
4. Attract Investors This portion of the project is handled by the crowdfunding platform. They will handle all of the legalities related to raising capital from accredited investors, and will be responsible for gaining attention for the project.
5. Raise Capital The amount of time it takes to raise capital for the deal varies, it depends on the deal being a debt or equity raise. If your raising money for a debt raise, the capital can be funded in less then 24 hours. Whereas equity raises may take longer, sometimes a few weeks to fund the entire deal
6. Approved Funding Once the accredited investors fully commit, within a week the funds will be cleared.

Crowdfunding is another avenue for raising capital, without the added work of finding your own investors.