Raising Capital in Multifamily

• Don’t wait until you have a deal. Start raising money immediately
• We have purchased some great deals by taking over a contract where the operator could not raise the money. Start immediately.
• Spend time understanding Cap rates, debt structures, and forced appreciation, and rent comps. don’t rush this part.
• So many capital raisers only have a brief understanding of these things.

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When do you start raising money?

• It takes months or years to build credibility but only a minute to destroy it. You don’t need to know every answer, but you need to understand the business model.
• Build credibility and become the trusted source for information or at least a conduit to the trusted source.
• Sell the team. If you are new, get on a team with a track record.

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When do you start raising money?

• Utilize a CRM and have continuous interaction with potential investors.
• Provide value to investors before asking for investment.
• Start with friends and family and one on one conversations first, and get them to opt into your communications.
• Expand into other networks Facebook, Instagram, Youtube, Linkdin etc.

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When do you start raising money?

It may be tempting to assemble your team with friends, which may be fine.

But, make no mistake, this is a business relationship, and be sure that you should treat it as such.

Building or Joining a team

Qualities to Look For In Potential Partners

For each potential partner/team member, you should complete the requisite due diligence to ensure they are going to be a good fit for the team you want to run.

Of course, everyone is different, but there are a number of qualities that good partners tend to have in common:

Building or Joining a team

Qualities to Look For In Potential Partners

Organized: There is a significant amount of paperwork and a seemingly endless amount of tasks that need to be completed to raise the necessary capital and get debt to close a multifamily investment

Building or Joining a team

Qualities to Look For In Potential Partners

Knowledgeable: As I described, there are a number of areas of specific expertise that must be present to originate and run a multifamily investment. Find partners that have the expertise you don’t and verify their credentials to ensure they know what they are talking about.

Building or Joining a team

Qualities to Look For In Potential Partners

Connected: Perhaps your partner doesn’t have technical expertise, that’s required for financial modeling, but they could still bring a tremendous amount of value to a team if they are well connected to potential investors, property owners, lawyers, or the business community at large.

Building or Joining a team

Qualities to Look For In Potential Partners

Supportive: Make no mistake. When you take on a partner, you are going into business with them. You will want to make sure that you work with a group who is as supportive of your vision and approach as you are with theirs.

Building or Joining a team

Qualities to Look For In Potential Partners

As you get to know potential partners, or to accelerate the getting to know each other process, here are a number of questions that you may consider asking: 

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• What is their vision for the investment? How can they contribute to it?
• How do they manage conflict?
• Are they willing to work to achieve mutual understanding on a subject?

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Questions to Ask Potential Partners

• How would they describe their communication style?
• Is it different from yours?
• What are their values?
• How do they align to the goals of the investment business?
• What unique skills and experience do they bring to the partnership? 
• What is their expectation for compensation?
• Do they want income or a percentage of profits?
• How do they envision themselves fitting into the partnership?

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Questions to Ask Potential Partners

• How will roles and responsibilities be defined?
• What will happen if one partner feels that another member of the team is not taking their responsibilities seriously? How will it be addressed?
• If one or more partners wishes to depart the business, how will it be handled?
• Does the partner have any references that can attest to their value to the partnership?

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Questions to Ask Potential Partners

Why Your Intuition Matters

Trust your gut!

• Creating the purchasing entity and using it to drive investment funds
• Pick a Company Name
• Ending in (Holdings, Group, Equity, Capital, Properties, Partners, etc.)
• Check name with:
• Secretary of State
• Godaddy.com for domain name
• Do trademark search at USPTO.Gov
• Logo
• Create Website
• Business Cards

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How to create/establish a brand

Limited Liability Company

• Easy to form in all 50 states
• Provides same liability protection as a corporation
• Single-level taxation
• Often referred to as a combination of partnership and corporation
• Very easy to manage and run
• Don’t need annual meeting
• Most commonly used in real estate �investing

LLC

Copyright © 2019 Lifetime CashFlow Academy LLC

LLC’s Continued

Business/Entity Structure Tips

• Keep personal finances separate
• You want an umbrella liability policy
• You also want to keep each property in a separate LLC
• Make sure each LLC has a separate bank account or at the least ledgered separately

Copyright © 2019 Lifetime CashFlow Academy LLC

Business/Entity Structure Tips

• Creating a holding company
• Setting up a management company
• Only manage your own properties
• If you manage someone else’s you need to be a licensed real estate broker
• Create a construction company

Copyright © 2019 Lifetime CashFlow Academy LLC

Your Holding Company LLC

Property

Property Specific LLC

Property Specific LLC

Investor LLC

Investor LLC

Investor LLC

Investor LLC

Property

Joint Venture Example

JV Partner A

JV Partner B

JV Partner C

Partnership Operating LLC

Property Specific LLC

TYPICAL JV STRUCTURE

(NON-SYNDICATED DEALS)

• This would be your S-Corp holding company
• No one is passive, everyone has a role in the deal

Usually formed in DE, WY, or

NV – LLC taxed as partnership

Usually formed in State

where the property is located

Sponsor Partner

2 LLC

Syndication Example

ETC

Sponsor Partner

1 LLC

Your Holding

Company LLC

Sponsor Group

LLC

Management

Class B

Equity

Class A

Main Operating

Equity LLC

PSE

Property Specific

Equity LLC

Property

A/C/A

Borrowing Equity

Formed in State where property is located

Usually Formed in DE, NV, WY

• Cannot just be a money raiser unless series licensed. �
• If raising money for a deal you must be on Operating Agreement you can’t just know a guy on the team and have him give you a cut. That is highly illegal. �
• Must do other tasks and have other roles besides just raising money.
• I recommend never being on a team unless you are at due diligence.

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Potential legal issues

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• No advertising with 506b not even emails to people you don’t have a real relationship with.
• No social posts with 506b syndications.

• Your liability is not limited to yourself. If your partners violate these laws it can put the whole project in jeopardy.

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Potential legal issues

• Preferred Return
• Promote IE: 70/30 split, 80/20 Split 50/50 split etc.
• Waterfalls

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Understanding common return structures and how to choose the one that is right for you

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