Raising Capital 101 (Investors Round Table)
Raising capital is never an easy feat, but it can help you scale your real estate investments and buy bigger properties than you could on your own. The investors round table discusses how they find investors, pitch these individuals / family offices / funds on placing capital in their projects, and best practices for beginners that are looking to bring private investors to the table on their deals.
Brian Adams, Excelsior Capital
Dave Codrea, Greenleaf Property Management
Logan Freeman, FTW Investments
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Launch Pro: www.crelaunchpro.com
Key Takeaways:
Capital raising is as much about marketing and sales as it is about real estate, so be prepared to put in significant effort
Consistency is important - you need to continuously build your brand and network through various channels over a long period of time
Clearly define your target investor profile and tailor your outreach, materials, and pitch accordingly
Develop systems like an "investor acquisition system" to capture leads and nurture them through the process
Keep deal structures and terms simple and straightforward for investors to understand
Continually work on communication skills and presenting deals in a clear, easy-to-understand manner
Action Items:
Start building your network and relationships now through social media, blogging, podcasting, etc. to have contacts ready when you need capital
Clearly define your target investor type (accredited individuals, family offices, etc.) and tailor your outreach accordingly
Develop a system to capture leads and nurture them through an "investor journey" with educational content
Keep deal structures simple with clear explanations of return metrics like IRR, cash-on-cash, preferred return, etc.
Continually work on communication skills and presenting deals in an easy-to-understand way for any audience
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville.
Episode Transcript:
00:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community, and monthly group coaching calls on how to finally buy your first commercial property today at www dot c r e launch pro.com.
00:24
Welcome back to the commercial real estate investor Podcast. Today we're gonna be diving into raising capital 101. So if you're looking at growing your real estate investments, you're gonna have to start raising private capital from investors at some point, because let's be honest, money is a finite resource. So what we're going to cover the the ins and outs of raising capital for your first deal, some tips on how to pitch your deal, put it together so that investors will actually want to give you money, right, and then we'll give you some war stories and some best practices from our experiences. So Brian Logan, welcome back to the show.
01:01
Thanks for having thanks for having me.
01:06
Absolutely, guys. Well, Logan, let's kick it off with you this week, tell us tell us about your first capital raise.
01:12
Yeah, I mean, the first capital raise was an absolute disaster. I mean, you get into this, you get into this thing. And, you know, you read a lot of the books and you understand kind of the, the ideas and what you need to do. But I think you grossly or at least I grossly
01:29
underestimated the amount of time and you know, the the amount of people that I actually needed to speak to to be able to get capital in mostly because you know, you are raising if you're getting started similar to myself, I mean, you're raising on relationship, right. And so you have to have really strong relationships that are going to be able to feel comfortable and trust you enough to move into that first opportunity with you, regardless of the the opportunity itself, you know, it could be the best deal possible, and you're still gonna have some some challenges. So I think the first real equity raise that we did was on a smaller multifamily complex here at Kansas City back in 2019, I'll, I'll actually remove the previous two that I worked on, because they were so niche and very unique. And maybe I'll circle back to those at some point, but much, much more from a straightforward standpoint was, you know, this 37 unit apartment complex. And what I learned was kind of two things. The first one that is eyeballs, so the amount of eyeballs, I don't need to have on an email, I just thought that I was going to send an email and people were going to respond, and it'd all be great. But no, you have to have a funnel. And I'll describe this funnel here very shortly. But the first thing was just like the amount of people I needed to have to look at this, this opportunity. But then I thought I wanted to describe, you know, every single little detail of the project and how we were going to, you know, implement every little piece of the business plan. And what happened was, I ended up making the deal, even though it wasn't I made it too complex it was there was too many cool things that we could do to this project. And what I found out was, you need to have a vanilla project with a little bit of icing on top. And what I tried to bring was, you know, a bunch of icing with vanilla cake thrown on there as well. And it just kind of confused people because it's not what they do on a regular basis, necessarily. And so I had been ingrained in the commercial real estate industry for so long and had done so many transactions, I took for granted that people just knew what I was speaking about. And they got it really, really quickly. And so as I'm talking I'm just I'm seeing eyes just glaze over. And people just say I'm like, wait, wait, wait, just slow down a second. And so I think that, what we do now, and how we try to you know, put these deal narratives together, because I love to write these things out. Because one, it helps me learn, right? I think that if I have to write out every single piece of every single deal, and know the square footages and the comparable properties, and all of those different pieces that you need to know, it helps solidify that in my own my own brain, but then I have to make that very simple for the investor that I'm speaking to. And so we've really made it pretty, you know, almost like for like an eighth grader that they can understand what we're trying to accomplish with the project. And then if somebody asks, you know, then I kind of have a three pronged approach. It's what's the downside mitigation. So the risk mitigation, what's the upside potential, and then if we get to it, then I talked about the unseen benefits and I think that's a good framework that people can kind of take away and, and utilize. However, I wanted to start previously on my first capillaries with those unseen benefits, and then talk about the upside potential. And then if we had time, get to the downside protection and so
05:00
I flip flopped kind of that the order of those in the pitches and communications that we do. And that seems to be much more receptive to investors these these days than just telling them all the cool things that you're going to do all these projects. So long story short, I mean, it took, we had, you know, two months to do the project, it took me four months to actually raise the capital, it took over 2500 calls to get that done. And it took probably, I mean, I'd say 50 hours or so of my time, you know, directly on the phone meeting with individuals to get them feeling comfortable with the project. And we still own that project today. And it's done well, but it was a grind. And I learned a lot from that first one, especially around how to communicate the deal points for each project.
05:49
I love it. Thanks for doing so in depth. Brian, what about you? How was I know you've talked a little bit about your first capital raise, but how was it kind of compared to what you were expecting it to be?
05:58
It a total total disaster? It No, this is 2010. So I had just got into the real estate business. And frankly, I don't think I even knew what questions to ask for whatever reason, we decided to raise a fund, just because we thought this would real estate professionals did so we had this blind pool commingled Fund, which just explaining to people how the fund worked, took up three quarters of the pitch, which just means it's a really bad pitch, right? And people are confused about return of capital and capital calls. Is it going to be ordinary income? Is it going to be capital gains? Is it a pass through entity? Do I have to be an accredited investor or a qualified purchaser? And it was I was so naive that I didn't even it would take me a couple of days to respond to those types of questions. Right. And so I was totally unprepared. It was a huge learning experience. We were racing to raise enough capital to close our first acquisition music bro, which I talked about last episode. And so we barely got the last $50,000 Check in to close that one acquisition, I want to say we raised Gosh, just over a million dollars, but it took me months. And these are folks that I knew, right. And this kind of to Logan's point, the differential between when you go to people, and you talk about what you're planning on doing, and they're excited, and they're saying, Sure, this sounds great. Definitely like to learn more, when you actually ask them for capital is like the Atlantic Ocean, the differential there, because when you show up, and you ask from a place, especially if you are in a position of need, and people can smell that desperation and fear off of you, it doesn't give them a lot of confidence that you're gonna be able to execute on this plan. And so it just was an unmitigated disaster across the board, I was completely unprepared. And again, I'm old. We didn't have resources, like podcasts or books really even understand how to start raising capital or how to think about marketing. Or even though we were raising a fund, it was really just syndication how to do syndication. And so there was really a dearth of resources available to us. We've come a long way, obviously, but it was very, very painful. And I would just second Logan's other comment, which is hugely inefficient amount of time spent both on me and the investor, right, the investor don't even have enough information to know if they're at EZ Pass, or they're interested. I wasn't given them enough to know so it's wasting their time. And my time.
08:53
Logan, did you say how much your first capital raise was?
08:56
It was 750,000. And that's,
08:59
that's probably I was gonna say I had a completely opposite experience of you guys. But I only raised about $100,000. So that's, I mean, it's a totally different game, once you start getting, I mean, honestly, above $100,000, right, because my first capital raise, I could have had one investor do that. I ended up having two guys write a check for $50,000 Each off of the first two text messages that I sent. And that was 100%. Based on just the relationships that I had built over the I think at this point six years that I've been in commercial real estate. That's one thing that I think a lot of newer people take for granted. You know, because you get asked the question all the time, like, should I be raising capital or should I be, you know, finding deals first, I think that you should have started, you know, building relationships years ago, and hopefully you've got plenty of relationships that you can kind of wait on for your first one. But I'm right there with you guys. On my second one total disaster. We ended up raising about $450,000 for an office A acquisition and I had three or four guys pull out the week before closing because one of the guys that was investing with us was a residential guy, like over 100 homes. And he just decided last minute, he's like, You know what, I don't understand office space. So I'm getting out of it. And then he called three other guys that had committed to invest in this and said, I'm not investing in this deal, because I don't get it. Y'all shouldn't either. And they all backed out, because they all got scared. And so here we are a week before closing, I'm scrambling, we end up pulling it together. But man, that was the most stress I'd ever been through at the time. I mean, I've been through way worse capital raises now. But I think there's no such thing as an easy capital race. I mean, capital raises get easier over I mean, okay, let me rephrase that capital raises may not be, or may not have as many hurdles in the future. Because you've built these relationships, you've built a track record, but they're always difficult. And I think they're always stressful. I mean, well, how do you feel every time you go into a capital raise? Are you like, this is for sure getting done? Because I've got such a great group of investors? Or is it still one of those like, hey, yeah, we're gonna have to really bust our tails to make sure this happens.
11:11
I think that we try to take the approach of, let's make this as palatable as possible, and have the most successful launch that we possibly can, leading up to the live webinar that we do. The results are, you know, not really in our control. And hopefully, we've done the work up to this point that would allow for them to be positive. But you know, you are always raising capital for a project when something isn't right in the economy, right. It's the it's, there's always a reason that somebody isn't going to invest in a project. What I have found is that those reasons are excuses. And if you can try to get those excuses out, you know, early on are objections, right. Jeb blunt, wrote a great book, multiple great books, but one literally called objections. And so we tried to really tailor our marketing around what those objections are going to be, and then hit them head on. And so that's, that's kind of the approach that we've taken, there's not any capital raise, we just launched a project last week, and there's no capital raise that I've gone into and said, Man, we've got this in the back, this is gonna go great. And we're 100% there. I think if you have that mentality, you're gonna, you know, we're on a tight timetable here, right? I mean, every real estate deal is Time is of the essence. And so unless you take every single approach that you can to make sure that you're successful, you know, you you have to be really careful because if you go in overconfident then one big person or one big investor, or one idea that you had that thought was going to work doesn't work out. Now you're scrambling mode, right? So I've tried to take the approach of okay, what are what are investors going to object to? Not just from a deal perspective, but from a, you know, economic perspective, that's why Brian is probably writing around all these reasons around the, you know, the global macro economic environment and climate, not just, you know, flexing industrial real estate deals in the southeast. You know, that's, I mean, that's very important. Because as you raise the sophistication of your investors, they're thinking about different things. And so one thing that I've done, I think, well, over the four or five years that we've been in this business doing it is really analyzing ourselves and analyzing our investor based and then trying to position ourselves to make sure that we're playing in the right sandbox. And if some of these some of these terms are, you know, I guess familiar to people is because Richard C, Wilson of the family office club, wrote a book called raising private capital. And I think his framework of analyze position, architect, execute and iterate is extremely beneficial for individuals who are looking into this, it's I think, it's our free book online, if you want the paper copy, you know, he's got to drop ship it to you. So you got to pay 1199. But you can download the PDF easily online, and that ebook kind of really changed my perspective on this, because we needed to understand what our real, like what our choke points were. And he kind of describes that as something that you control that other groups don't that's your unique, you know, perspective and, or a unique value proposition. And so for us, it really was, okay, well, we're Kansas City Focus or Midwest focus, there's, you know, fewer groups that are doing deals just in a four state region, and here's why that's beneficial to you, the investor. So it's really tried to, to, to bring the fact that we were, you know, the Midwest experts on the on the different property types that we're doing to the investors. And so analyzing ourselves analyzing the investor group, because then, you know, our investors started to get more sophisticated and they started to write larger checks. And so then they started asking more about interest rates and, you know, the Fed and so I had to go read books around, you know, what is the Federal Reserve and I started buying economic books and trying to understand supply and demand from a really, you know, macro level and then I wrote read micro economic books and so, that helped me analyze ourselves, our investor base and then position ourselves in the right sandbox to communicate those choke points. And then we focused mostly on the architecture, or architecture of the deal, funnel. And we can speak to that here in a bit. But that's kind of how we, we have approached this thing. So I think that if you just blindly go out there and just say, you know, I'm gonna communicate this deal to all the people I know, and they're gonna, they're gonna invest with me, that's probably not going to be the truth. I mean, you know, frankly, we didn't really start with friends and family, we started with the business network that we had had, and built up, you know, over the four or five years previous to that, not necessarily just go into friends and family, sure, they were interested. And so we had conversations with them. By baking on that, I think it's a bad strategy. So and people want to know that you've thought through different scenarios as well on these on these things. So I think just to button this up, I'll let Brian talk with to analyze yourself, analyze the people that you're speaking to, and then positioning your company and your deal into your your certain choke point is extremely important for people to really grasp the why behind it, because the framework we always, we always take is why this deal, why now? How, how are we going to actually implement this? And then and then what, early on again, I'll iterate the fact that I started with the what I forgot about the why. And then I talked nothing but the the how right, so I got stuck in what Oren Klaff calls the analysts frame really early on, instead of the here's the big thesis. Here's the big picture. And then let's talk about the what are sorry, that what and the how here in the near future. So yeah, I think that's, that's but no, there's no, there's no time that I've ever really hit launch on a capital raise and said, man, we got this thing in the back. I wish I wish that was the case.
16:47
Yeah, Brian, I want to get your thoughts on that too. But real quick, I want to touch on something that Logan said. You know, as as general partners, as deal sponsors, it is imperative that you are constantly looking at growing and constantly learning. I mean, Logan does a great job of telling you all books every time we talk what books you should be reading. And honestly Logan, I'm waiting for you to create the your your your book event or you know, Logan's library, you know, something where we could just follow along with whatever you're reading, so we can start buying those two. But, you know, you had talked about like, there's never a good time to raise capital. I mean, almost everything that I've learned about treasury bonds has been something that Brian has been writing about here recently, because I never had to even remotely face something like a treasury bond with my level of investors, most of them or, you know, not your hyper sophisticated multimillionaires that are raking in seven figures a year and understand the markets in and out. But we've recently gotten to that level where now we have investors that are going, you know, they've got $100 million in cash, they're trying to figure out what to do with it. And they're going, Yeah, but I can just buy T bonds at 5%, and take zero risk and sit here and wait for a little while. And so I was like, Well, damn, now I gotta go, where to how to counter that? Because I didn't know, you know. And of course, Brian puts out a lot of incredible information on LinkedIn, you guys should go follow him. So you can see some of that content. But Brian, I want to I want to get your thoughts on, on how you feel going into capital raises.
18:15
Yeah, so just to kind of respond to your last point. It's a very fair objection in today's market. And so it, the way that we've positioned it is you want to maintain your purchasing power, which we could get into later. But that's exactly the point here, which I think is early on. What I see from a lot of sponsors, and managers who are not used to raising private capital, is they start with what I call is the ego pitch. Like, I went to these great schools, I have this experience, I found this wonderful deal, I think this deal is great. And then they go out to market shotgun it to their friends and family. And they try to cram it down their throats, right. Whereas the empathy pitch, which is kind of what I detailed last session, where you go out to the market of people that theoretically might give you capital, and you figure out what their problems are. And then you position your widget to be a solution set to their problems, and you start with their issues first. And how your offering could potentially be a solution set to their problems may not be the most exciting thing in the world and most exciting, sexy way to raise capital, but I promise you, it's more efficient. And to Logan's point, we're talking about efficiencies here because across my career, my conversion rate is around one to three to 5% Depending on the circle that you're in in terms of first, second or third degree. So on some level, you really are talking about kind of what the denominator is. And it's a numbers game on your conversion. Because if you want to be in this business, and this, I tell young people who kind of ping me to have coffee or talk. And they say, oh, yeah, like, I want to be a principal, I want to be on the buy side. And I just always say, stop. If you're going to work as a syndicator, or small fund manager, you are on the sell side, every day, you wake up in the morning, and you're selling yourself, you're selling your product, you're selling your company, to brokers, to investors, to service providers, to anybody. And you better have that mindset when you wake up in the morning, because you're going to get crushed every day. And I think it's hard for people like I send an email out, we have about 5000 people on our distribution list that are accredited investors, we maybe get 25 to 50 people to participate in any given offering, which is great. And I love my investors. But if you think about it, that means I'm having 90 to 95% of the people who I think I know, straight up told me no, or just don't respond to me. And like you do that year over year, day over day, and it will mess with your head, if you don't have the right framework about being told no all the time. But if you're not getting knows you're not making enough asks. And that's just the business that we chose to be at. And it's very difficult, I think, because a lot of people if you don't take your capital raising process seriously, why would the people that you're pitching take you seriously. And that was something I didn't really understand earlier in my career. And we've come a long way in terms of the funnels and the systems and the processes and the sophistication that we have. But it was born out of a lot of scar tissue for sure. And so every time that we launch a deal, I'm very pessimistic, I'm probably the worst critic, I always think it's going to be super challenging. And like, maybe we can't do this, maybe this is just not the right time, it's too much of a stretch. But unless you are going to market consistently, you're never going to get better and learn. And we've always improved our process and systems when it's been like the most grueling capital races, because that's really when you figure out what works and doesn't work. And unfortunately, there is a direct correlation between the things that people don't want to do, and how effective they are. Like everybody just wants to send an email or posted on a message board or find one investor. And like, that's the deal. And that's your unlocked your capital raise. The reality is, it's going to take a huge amount of text messages, phone calls, coffee meetings, planes, trains, and automobiles to get this thing done. That's the most effective way to do it. People just don't want to do it. And they don't really want to hear that either.
22:59
Yeah, it's true. I mean, we're trying to figure out how we can start sending our investors homing pigeons and smoke signals, because it's like, you literally have to do everything you possibly can. Because sometimes people just don't even look at the email until the fifth one they get. And it's like, man, if you only sent them four emails, then you're not going to get that Capital One. It's just because they're busy, or whatever else is going on. We've got a gal,
23:23
let us speak to that. Tyler, yeah, go out even the capital, it's the attention. We're all vying for attention. And we live in the attention world now. And unfortunately, and fortunately, we can send text messages. We have emails, we have phone calls, we can send video messages, we can get on Instagram and send DMS, we have LinkedIn, we have Facebook, we have all of these different modes, which is good, because you think you can reach people easier. But then you realize that if it's not the top of their list, in regards to what they're giving attention to, it does not matter. It could be the perfect deal. It could change their life, and it could do all this amazing things for them. But if you don't grab their attention, then you're not going to get the time that you need to actually explain it. And so we're vying for attention. And I don't think people want to hear that either. And that's why I think if you're serious about doing this and actually raising capital, you have to be everywhere all of the time. And to do that is extremely it and to do that in a way that is authentic and effective is extremely tiresome, and it takes a lot of time. You think you want to do real estate? Well, guess what you're now in the marketing business. You're now in that communications business and now you're in the sales business to get capital to do your projects. And so that's it's a double edged sword because if you're not the top of the list, and I found the most effective thing is to just call people and leave voicemails even if they don't call me back by the second or third Recall, they're out, right I know they've received it, they it's literally a notification on their phone, a text message, they'll wipe away no big deal. But a phone call, there's something visceral about seeing, hey, Logan left me a voicemail. And I feel bad about not returning that or at least sending him a text message and say, hey, it's not the right time. Right. So people will have just no regard for it regardless. But I do think it still takes a lot of direct outreach. And honestly, this is kind of why we see the marketers that we do, and why their marketing is so aggressive is because they're trying to catch your attention. And they might have the worst deal possible, but they might be the best marketer ever. And to get more attention than the person who has been doing it for 50 years, it's probably a home run, that has no idea how to get anybody's attention, they probably don't need the attention, right, because they've got their own their own capital, their own sources, but I just wanted to make that really, you know, apparent today is very difficult to get people's attention, regardless of what social media you are on. So and I've looked at this seven ways to Sunday, and trying to, you know, track where the leads are coming from, and I've just decided that the more action that you can take, and the more visibility that you can get, the better because I might do this show. And I might do four other ones this month, and they come through on my, my webpage as a new lead. And they just say podcast, you know, and then you have to then call that person and say, Hey, where did you hear we from? Oh, by the way, you know, because I'm genuinely interested. And they won't even remember what podcast or show they heard you on. So again, if you're not serious about basically having a small marketing business, and trying to get capital into your business for that, then it's not something for you. And that takes time. But it also takes money and a team to do that. And Tyler, it's why you've written books, and you have all these different mediums for people to engage with you. When I think about Nashville real estate, I think about these two guys right here on this show for a good reason. But that didn't, that didn't just happen overnight. And so that's why when you're on LinkedIn, and you search Logan Freeman, it says Mr. Kansas City, and I can't tell you how many, you know, random conversations that has gotten going for me, because people will say, Well, what about Patrick mahomes? And then boom, we're off to the races. Right. So
27:24
yeah, I couldn't agree more. I mean, I say that all the time. We are your just because you're in real estate doesn't mean you're in sales, your marketing, right? Because you're probably never going to be the best syndicator out there. I know that I will. Right. But we have really good projects to bring really good returns, I think above average returns. But we've got a better broader reach than what most other people have. So it's not necessarily how good you are. It's how many people know about you? Right? I mean, I've been using this analogy since I was in high school because I was obsessed with guitar. And I used to watch guitar videos all the time. And, you know, I can't remember who told me this, but they're like, the greatest guitarist will never be known. Because he sits in his room and never plays for anybody. And so I mean, that is just always sat with me like, wow, I mean, you're probably right, the greatest guitarist will never be known. So let's
28:16
all over Anthony, right. I mean, this is a perfect example. And quite really interesting. Case study of what's going on. Right now. You got a guy? Where's he from? Tyler? And I'm sure you know. Is it Georgia? I
28:27
don't know. Yeah. Okay. Well, he's
28:29
on 90 acres. No, it's in, you know, he's in Virginia. That's right. So 90 acres in Virginia, he starts strumming a guitar and building out a song. And then Joe Rogan hears him, right and says, Man, I want to I want to interview that guy, that guy's got something unique. And then Bo, the guy is, you know, top song beats out Luke combs on Spotify, and the tougher the top song in two weeks, right? Because I mean, that's exactly, that's exactly it. So, back to the choke points, if you can figure out what yours is. That guy was interesting, because he was one, his lyrics were interesting. But two, he had a good voice, he didn't look like a lot of the guys that you might see out there. And then somebody picked them up, because he put it out there on Instagram, you know, videoing himself. So I think that the other part about this is having the competence to, you know, actually take that step and put yourself out there. I can't tell you how many times my wife has said, There's no way I could do what you do. Because all you do is speak in front of a camera, talk to people all the time about you know, what you can do and what you are doing. And that's just not that's not for me. So there and that's not to say there's not general partners out there that you know, are behind the scenes, but I guarantee you they have a right hand man or woman that is exposing them and in a really good way and bringing them in when when the time is right to to talk to investor so it just wanted to kind of put that point out
29:52
there. Yeah, I think that's great. We've got a bunch of comments in the live chat. I want to make sure we acknowledge these real quick Alex is saying solution sell I think going back to your comments there, Brian about, you know, tailoring your invest your investor pitch to each individual investor, I think that's great. If it doesn't resonate, it doesn't matter. A lot of people want to make money, but they also want to enjoy what they do and work with people they enjoy. So I completely agree with that. Let's see, we've got a couple of other comments, text and I'll get to yours and Joe Carrera. I'll get to yours here in a minute too. But this next one kind of leads into the next part I want to go into in the in the show is from cold Turner. So hi, my name is cold Turner, I'm a graduate this May 2024. I'm very interested in commercial real estate development, multifamily specifically, I was wondering what I could do now to help in the future, when it comes time to raise capital for prospective projects. So I think the question there is like, how do you find investors? If you're just starting out? How do you go about building that Rolodex so that, you know, in 234 years from coal is ready, he can hit the ground running.
30:58
So I think the best time to raise is when you're not raising. And if I was coal, or somebody that summer situation, what I would if I could go back in time and kind of redo this, I would be really, really thoughtful, and focused on what my ideal customer profile is, like, who my avatar is who I want to serve. Because the problems that an institutional capital partner have, are very different from what a high net worth individual might be facing. And if you're trying to serve as both of those avatars, it's going to be really challenging for you add a cohesive narrative and a product type that will fill both of the buckets for those folks. So cool. If you're listening, I would figure out who you want to work with. Right? I would do some market research. Do you want to work with individuals and families? Do you want to work with institutional funds? Do you want to work with JV partners and private equity, 9010 allocator groups, whatever it is, there's there's a huge ecosystem of capital partners out there. I'd really figure out who you want to work with and why. And then I would just spend as much time where they're spending time as possible, like so for me, for instance, ultra high net worth individuals and families. I read the Wall Street Journal, I read The New York Times, I read The Financial Times I read The Economist, I in go to the beach in the summer, the same place that a lot of these folks go to I go skiing, where a lot of these groups go to because most of the conversation initially is a screening call, like, does Brian have the right network? That I feel comfortable? Progressing beyond this? 10 minutes? Do we know the same people? Are we members of the same clubs? Do we go to the same places? Is he a member of the same affinity groups? Does he have the same interests? Right? So for me talking with ultra high net worth individual, it's a very smooth conversation. Generally speaking, we're going to have some commonalities and touch points, and how we live our lives. But if you were to have me go and pitch the hell out of Harvard endowment, which I did once, and it was a total disaster. But I did get the I got the meeting, it was a complete was pretty impressive. Yeah, I mean, that's a different story. But that was a terrible pitch. Right? And it would be today too, because I don't really know what problems endowments are facing, or even like, what cheque size I want to write, or what type of deals they're looking at, because it's not my world, right? So I would be really honest with yourself about who you feel comfortable being who you want to work with. And then start small like, Well, the nice thing is social media is free. So you can build out your brand, you can build out your presence and your footprint, you can provide insight, hot takes content, like Logan with his books, right? You can do all that for free, just take some time. And then you could build an email distribution list pretty cheaply as well and maintain it. But I can promise you the biggest thing that people just don't do across the board yet, you can listen to this show for an hour. People who actually do it, like the consistency of sending out a monthly newsletter, we've been doing it for years, posting on LinkedIn every day. If you just do that really simple, basic stuff consistently. And it's like being on a diet or working out. Adherence is the biggest key. It's not necessarily what you do. It's your ability to adhere day in day out. You will be taught decile if you just are consistent.
34:50
Yeah, I think it's all about the consistency right. I mean, when I started the podcast when I started the YouTube channel, you know, we committed to doing one week for at least a year before we even started looking at our analytics, right, because you've just got to, you just got to do it the first time your first 10 investor pitches, you're gonna be awful your first 2030 4050 are probably not going to be that great. But you need all that practice so that on 51, or whatever it ends up being you just absolutely crush it, and you're comfortable enough with yourself to make it happen. And, Brian, real quick, before we get to Logan, I want to recognize you for what you're doing on this front, right, because the capital club podcast is 100% directed at your target customer in a completely different way than your typical commercial real estate podcast, right? Like my podcast is almost 100% specifically commercial real estate. Whereas the guests that you're bringing on, they're experts in, you know, tax strategies, you know, investing in foreign investments. I mean, you've had some really interesting, different people onto the podcast, which is very beneficial for private family offices and how they decide to diversify their portfolios.
36:01
And I actually posted about this, I think, at some point, or maybe it's going to release, but a few things. Yes, thank you for recognizing that. The nice thing about getting your avatar right is even though it takes a little bit of time on the front end, it saves you so much time on the back end, because now you don't have to pitch like 99% of the universe, you can ignore all that noise. Like I don't take meetings with private equity groups, allocator funds, JV partners, institutional LPs, even really qualified purchasers is not my universe, right? So like, I don't have to worry about that. And then your point about the show, I literally will just read the New York Times, The Journal, The Economist, Financial Times, whatever. And I'll just look for quotes, I'll read the article, and I'll say, oh, that's an interesting topic. Like I've heard my LPS complain about investing into mining interests. And when I think about that, and I say, Okay, this article is about mining interests. And then I'll just look for quotes. And then I'll figure out who's the attributable person giving the quote, and I'll hit him up on LinkedIn. And I'll say, Hey, man, I really enjoyed your commentary in the Wall Street Journal, I would like to connect. And then 24 hours later, 24 hours later, I hit him with actually have a podcast directed towards ultra high net worth individuals and family office, private investors, would you be interested in coming on and being a subject matter expert? Boom, like my conversion rates super, super high on that, right. But again, you've got to be focused on like, what you're doing, because if you're all things to all people, you're gonna fail, as can take up a ton of your time.
37:41
Logan, what about you? What advice would you have for somebody just getting started?
37:45
Alright, so I would say you need an investor acquisition system. And you can do this at any point in time. And the earlier the better, because you're going to be able to get to that iteration phase much faster than if you do it later. But to Brian's point, I would say, you need to understand that working for a big business, a large real estate developer and raising capital is different than going and raising capital for your own either fund of funds or your own your own projects. Because one, the way that you have to do that is different, but to the way that you might have to communicate is different to that as well. But being able to aggregate a number of interested investors and capable investors after you have your avatar is what I'm going to speak to. And I'm not going to take credit for this Adam Gower with Gower crowd has put this together, it's a free graphic out there, just search investor acquisition system. And it starts with reputation, visibility and leadership. And the way that you do that is LinkedIn, Twitter, Facebook, Instagram, YouTube, podcasts, everything that you can think of, of where you where you need to be, where people will be engaging, or you also you can also become a scratch golfer and Join your local club, because there will be plenty of guys there playing all the time saying, Hey, what the heck is this kid doing beating me in golf and how and they will be, they will want to try to play you know, Joe, and you will be out there playing golf with guys who can introduce you to 50 other guys and they're all gonna say, hey, let's play golf next Friday. So I do I, I've raised a lot of capital from country clubs. I'm not a scratch golfer. But I do shoot, you know, at an 11 handicap. And that's good enough for me to get into a lot of these different tournaments and playing with these guys who I can't fathom of like, what did you do that it's a Tuesday at, you know, 11 o'clock and you're playing golf and you're here on Wednesday, Thursday and Friday as well. There is something to be said about that too. But if you're in school, and you can't do that you can't be on the golf course and you don't have that network. That's that's where I started. Then you can get to this investor acquisition system, which again, starts on the social medias, but then you have it you have to think about the investor journey. And so that this is very awesome, because we now have AI, artificial intelligence that will help you build out these campaigns and even help you write these emails. And there's free email, clients like Constant Contact, I use Active Campaign. And each time somebody raises their hand and says, Yeah, I'd be interested in learning more about what Logan is doing in Kansas City, they are entered into a campaign that they engage with. And based on their engagement, they're moved to different sections of the campaign along the investor journey. And at some point, they're going to have a lead score, right, they're going to be scored to a point of saying, hey, this person's opened seven emails, they've clicked five of them, they've spent 30 seconds on this webpage, this is probably what their hot topics are, we think that based on your criteria, they're ready for a phone call. And then the investor relations team will actually reach out to them once they're warmed up after that first phone call, which is very structured. And I have a lot of resources in regards to what needs to happen on that first phone call, if it moves forward. Two weeks later, after we follow up with more emails and text messages, I'm getting on the phone with this individual. So there's an investor journey where they have to know like and trust you, you're going to hear that a lot the KL tea out of frame framework, right? know, like and trust. And the way that you can build that is through educational content, and showing that you're out there putting the work at. And then there's all kinds of different lead, you know, generation that call to action, whether that be an e book that you write your take on the current market, what you're doing on a regular basis, what you're learning in school call, right? Like, hey, I'm finishing up school right now, and this is what's being taught in there. And I want to talk to you about, you know, Mr. or Mrs. Investor about is this something that's realistically, you know, going that that I'm going to engage with in the real world when I get out into the actual marketplace. So you have that that whole communication journey, the investor journey they know like and trust, and then you have some sort of call to action where they are they are you hopefully you have something, right, you have that widget that Brian spoke about previously, that, you know, solves their problems, and you might have might not have a deal right now to do that. And that's okay. But for example, investors that when we don't have a deal, we have what's called a portfolio allocation model and or framework that we actually use David Swensons model, I believe he was from Yale, Brian, keep me, keep me honest there. But he put the portfolio allocation model together that helped them beat, you know, the market for a long time, that's public out there of what he did. And so we just distill that into an actionable worksheet that people can go through. And you can watch the 50 Minute Webinar, they can write down where they have their investments aren't, he gives them a score, and where they need to focus on after they go through that, then we can have a call all this sounds like you can, it can happen in a week, it takes months, it takes months. So don't think that like an investor is going to do this all at one time. And they're going to be like, Oh my gosh, you're gonna have all these investors. You might take somebody seven days, it might take 77 months, just depending on what they're, you know, when their their timeframe is. But that's a way that we continue to raise while we're not raising, and we bring them through this this journey. But I think that what you can do currently now is definitely go follow Adam Gower, he puts out a lot of resources and free stuff and investor acquisition system. Careful, Adams, a master at capturing your dollars, and he's captured a lot of mine as well. He's a master so but mimic him, right? Engage with his content, because what he's teaching you, you're actually going to be going through, and that's what you're going to need to go through with your own investors. So the best way that I've actually learned is not paying for a lot of these courses, I have paid for a lot of them. But I never actually went to anything I just signed up, saw how they got me to sign up, I Radek wrote down all of the different steps that I took and where I didn't take. And then I created my own frameworks and campaigns based off of that. But to distill that all into one actual thing is you need a place where people can engage with you on a regular basis where you not only get their email, but you have to get their phone number, right, get their phone number, and make sure that you're reading and or engaging with, with content out there, I can't tell you how many investors have written multiple six figure checks with checks with us and have no idea what's going on in the world. It's crazy. They are in their business, they're working hard, they've got family of six kids, like they don't have time to read the Wall Street Journal, or the New York Times or whatever it is. So bring that to them, distill that down into a couple of bullet points, or a video or some sub some sort of engageable content, and then follow up with him about that. But basically, make sure that you're capturing their information. And when you do decide that, hey, I'm gonna go launch my own fund, or I'm gonna, you know, participate in this, this project or I'm gonna go work with somebody, even if you don't do go work with a big developer like Tyler or somebody like that. Tyler, if somebody came to you and said, Hey, I'm really interested on the capital raising side. For the last five years I built up a list of 3000 investors, I think about 50 100 of them are probably accredited investors from the polls that I've sent them. And I have hot buttons for each one of those. I think that's a pretty good hire that somebody might be interested in.
45:10
Right, I think it'd be hired them on the spot. Yeah, I mean, that might be
45:14
hired him on the spot, right, because they've shown initiative, but then also, they're bringing some value to an organization. So I think that's a, that's where I would start. And that's exactly what I would do. And I sort of did this back in 2014. With a WordPress blog, I just started writing book reviews of the books that I was reading, and it got 2700 followers out of nowhere. And guess what, I took all those emails because I captured them. And then that was the start of my newsletter monthly that I wrote for about eight years. And so that's kind of how I got to this point.
45:46
Jessica prophet is in real estate development here in Nashville. She commented, this is such great information, how many women are on the golf course with you? Logan sounds like next time you come to Nashville, we've got to get a group together and go out, go golfing.
45:58
I would love that. I would absolutely love that night. Believe it or not, I do play with quite a few women out on the golf course. And they are a lot of fun and a lot better than me.
46:07
Yeah, I'm a terrible golfer, I enjoy it. But I need to get better so that investors don't go yeah, we're absolutely not investing with that guy. Whenever I'm out on the golf course. Well, it's
46:19
one thing to talk about golf is bad is don't be slow. And that's all there is to it. If you can be bad, and be slow, but pick your ball up and get moving to the next fall and say, Hey, I'm good to go. Let's rock keep
46:29
everybody moving. Yep, that's it. Okay, so let's, let's talk about deal structures. Because that that is typically in my experience, the biggest question mark, that people will have, when it comes to when it comes to these deals? Because they don't know how much how much do I need to pay an investor? How much do investors want? What do investors want to see? Texan has a question that says in general, do you try to offer a certain percentage return for the investors per year? Or do you give them a percent of ownership? What do you always takes on different deal structures? Because I know everybody's got a different one. Brian, I'll let you kick it off.
47:08
Yeah, again, not to sound like a broken record. But it's going to be a function of what limited partners or investors you're working with, because they're going to have different expectations, it's also going to be a function of what environment we're at, right? Two years ago, if I were pitching you is going to be about yield and cash flow, cash on cash returns monthly distributions. That was when the 10 year was at sub 2%. Now with bonds and money markets, giving you five or 6% cash on cash yield is really kind of meaningless these days. And so now it's about total return. After tax returns, can I hit a good IRR, shorter term duration, recycling that capital, which all might kind of sound like gibberish to you. But the point is, you're going to have to do some market research. My advice would be keep the terms and the fees very LP friendly and very vanilla. Because once you get into a pitch, and you have some type of complex, esoteric, multi level waterfall that you're walking people through, and you're getting in granular on explaining it, your pitch is toast. And so I would just do whatever your investor base is accustomed to plain middle of the fairway vanilla. For us. It's like a one and a half and a 20% over an eight, which again, might not mean anything because you but can you break
48:35
that down until layman's terms.
48:37
So we charge if you give us $1 We charge one half percent annually as an asset management fee that comes out of cash flow from the property which is on equity in the deal. We have to give you that dollar back then we are promising you an 8% preferred return annualized compounded. Okay? Which means that if we hold the property for 10 years, I give you your dollar back, then I give you 8% annually. Okay, so we're talking eight cents. So that's 80 cents over a 10 year period. So now I owe you $1.80. Anything above that dollar 80 return of capital, we split 20% to the OP to the operator sponsor, General Partner Manager, the person running the deal. 80% goes to the investors pro rata based on the amount of capital they have committed the deal. which I know sounds like a lot like for me and Logan Tyler this is just table stakes. So we throw these terms around. It can be very confusing. I would def Do you recommend reaching out to some resources on YouTube that can explain these things visuals I think are very helpful. But my main takeaway is here, especially when you're starting out, don't get too fixated on having a super complex process or system when it comes to economics employees, just do what your investors are going to feel comfortable with. Because the focus on the pitch should be on the management team. And the investment thesis and the business plan. And the opportunity set should not be on structure and fees. So what I talked about earlier, my first capital raise, we raised a fund, that was stupid, we shouldn't have done that. It was the fund vehicle for what we were doing who we were talking with was a sub optimal. An expensive investment vehicle, we should have just do been doing single purpose vehicle identity LLC is right, we've learned that over time. So you can talk offline about what all these fees look like. And it can get really complicated really quickly. But my main takeaway is keep it simple. Keep people within their comfort zone when it comes to fees. Because I think the first five or 10 minutes, if it gets jammed up on fees and the pitch and the conversation, it's going to be a hard conversion for you.
51:24
Yeah, I couldn't agree more. I mean, some of the deal structures that I've seen come across my desk, it makes me wonder how these guys ever get anybody to commit $1 to their deals, because, you know, they've got this waterfall based on this IRR. And you know, if they hit this, then you'll get this percentage return. But I mean, it just, it was a Don Miller, who says if you confuse you lose, I mean, it couldn't be more true in a scenario like this, because most people already don't understand IRR Rs, they get cash on cash returns. And so if you're gonna start basing waterfalls on a certain IRR, which you can actually kind of manipulate as a general partner, then you're you're gonna have people that don't want to invest with you. I'm right there with Go ahead, Brian.
52:04
Well, and will and what Logan said earlier, I think is easy to say hard to do in practice, because we all want to prove how smart we are. If your marketing materials aren't, if they aren't accessible to a fifth grader. It's too complicated. And I'm including institutional investors in this. So like if I go to my 10 year old, and I explained to him how the deal works, and he doesn't understand it, I've got to get simpler. And that's not a shot against your investors. That's just the reality of any marketing materials that you're putting out there. Regardless of what widget you're selling. People get intimidated really easily. And if they get intimidated and scared, they go primal. And they run away. That's the last thing you want to do.
52:56
Yeah, Logan, what what are your thoughts?
52:59
So w is FM is everyone's favorite radio station, what's in it for me. So remember the why how what framework that I presented previously. And the what is in this scenario would be what the returns are for an investor. So so he's really interested in trying to clearly communicate the returns for a real estate project, you better know what IRR is, how it's calculated, what cash on cash is, what a preferred return is because preferred return is often misunderstood in our business. And I've had to spend a lot of time communicating that it is a hurdle rate. And we pay distributions out of the district distributable cash flows. And that may not be what the preferred return is. And it doesn't start until X, Y, and Z period because of xy and z. So IRR cash on cash. And equity multiple is the other one. And so if you can understand what a preferred return, what those are, and clearly communicate those as chat GPT Hey, I'm trying to understand what these four return metrics are. Explain it to me, like I'm a fifth, I'm a fifth grader and see what it it spits out to you. And that's how we go and communicate this back to investors, right? And then, okay, so they understand that and then they start to compare, right, because that's how our brains work. So like, Okay, well, if I can get my equity multiple is to over five years. Can I do that in the stock market? Can I do that in other ventures? Okay, tell me, how do we get there and then boom, now they're asking you questions about how you actually get to those numbers into the project. And then they say, Oh, well, why would I want to do this again? What are you investing? What are we investing it? Right? And then then you get them on board with the thesis. So So sometimes that framework can work backwards if you're in a communication with another individual. And so you have to always be thinking about that. But I would say this, you need to get really clear on how to communicate what those return metrics actually mean. And then when somebody asks you, well, how are you going to do that you need to have really reputable information, and hopefully proven on previous projects that you can point to of how you're actually going to get to those things. The last thing I'll say about this is, we typically at least myself, I do not get stuck in the analyst frame, I've just stopped doing it because I in the analyst frame being somebody who wants to negotiate about every cell and every assumption. And so I try to say, okay, look, there are a lot of key assumptions that can be made here. Let's start there and agree with those. And so actually, all my pitches will have a slide that has the key assumptions that are going to manipulate those return metrics, mostly. And so I then get buy in with them on Do you believe that this exit cap rate is conservative? And do you believe that we can achieve these rental rates based on these comparable projects? And do you think that this will take six to eight months, and then that's when I start to really get the information out of an investor of what they're actually thinking about. And I'm not just sitting there talking and glossing over what their actual hot buttons are. But if you can't communicate what those return metrics are very clearly and concisely in a short duration, and you stumble over that you're going to lose people from day one, because our minds are also attracted to numbers. So they're going to flip through it, they're going to look at the pictures. And then they're going to go to the last slide, and they're going to say what's in it for me, and they're going to look at the numbers, and then they're going to start comparing, and then if you can get them over that, then they're gonna ask how you're going to get there. And then why should I do this?
56:52
Yeah, like that. I'm gonna go back and probably reformat my offering memorandum to put just in big bold letters on like a second page, all the returns sample $100,000 pitch, because I've got it, but it's later in the deck. And I like how you just said that, like, catch them with the returns, get them to start thinking, can I get this anywhere else? Now I want to dig further into the software memorandum. Or we've got, like, two minutes left, we've got two questions in the live chat. So let's do a lightning round. To get these answered. Joe is asking could I simply find one investor to JV with to acquire three multifamily properties doing a burr strategy and live on my passive income? I'll let either one of y'all take it.
57:38
Okay. Mike, I'm gonna I'm gonna ask one question back and I'm like Brian ticket, can I find one supplier for wood decking to replace all of the decks on 1500 units in Kansas City alone? The answer is no for me, so I'll Brian. And I could have asked a million different that question in a million different ways. But that's my that's my opinion.
58:04
Yeah, if, if this business is how I pay my personal mortgage, and take care of my children, and feed and clothe them? Do I want to be beholden to one investor? Ask yourself that.
58:18
Yeah, I feel
58:20
the Retrade possibility is like, enormous downside risk for you. And if you don't think those JV guys are going to read your age you they will trade their grandmother for a shekel On The Street in Manhattan. I promise you they'll rip your face off. I would I would just not know, it's a bad idea. Sorry.
58:41
Yeah, I agree. I mean, I think it comes down to your relationship with them. Like, like, if it's your your dad, and you have a great relationship with Him that Yeah, maybe. Right. But Brian's absolutely right. I mean, these guys will wait until you're, you've got hard money in the deal, you're 24 to 48 hours out from closing, they know that they're the only guy that's going to come in and save you and they're going to retrain you on every single aspect of you, actually, we're gonna give you 5% Instead of the 20% We agreed on. And you know, you're going to be Class B shares compared to our class A, I mean, there's all sorts of things that they'll do just because they know they've got you in a corner. So just be careful with that. Oh, let's see. I know there was another one on here. Oh, would you guys recommend using an equity broker? They typically charge two to 3%. I've never used one I have always tried and it's never worked out. What's your experience with it?
59:33
Equity brokers want to place the debt. That's what they want to do. They want to place your first lien mortgage, and they will all say I have 75 groups to talk to about equity, but we have to do the debt in place. And that's going to limit your options in regards to that. That's been my experience. So yeah, Ryan do it.
59:54
Yeah, no, you're exactly right. There are mortgage brokers pretending to raise capital and and they are going to want to place the debt for you. And if they say they have equity resources, they're lying. And more importantly, public service announcement, never enter into a retainer agreement with anybody who is willing to offer you capital, raise some services, at least negotiate a straight up success fee. Because otherwise it is just a straight up cash grab legitimate place when agents don't work with groups under 350 to $500 million mandates period.
1:00:30
Yeah, I mean, these guys all want to get you locked into a contract so that they know I mean, again, it's the same thing as the JV situation like they want to get you locked in so that you have no other resources and then you're desperate to use them.
1:00:41
You can Google the top 100 Private Equity 9010 allocator funds in America, and you can call them yourself if that's really what you want. Yeah.
1:00:51
Awesome. Well, guys, we are one minute over the hour, so we're gonna go ahead and call it audience. We will be back in two weeks, September 25. Diving into different commercial real estate asset classes and how to pick the right one for you. We will see y'all then. Thanks for joining us this week. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls on how to confidently buy your first commercial property today at www dot c r e launch pro.com
Each week, I'm going live at 8:30am CST for my "office hours" to answer your questions about commercial real estate on the show. Let's hear what you'd like to know when it comes to brokerage, investment, and development!