Finding Investor Partners - My current ONE Thing (...and my biggest frustration)

[Hari Mann]

Post title is inspired by a book I read by by Gary W. Keller and Jay Papasan. I love educational books like this and a bunch of others that really give me energy to tackle my goals and hustle hard towards my big why (shoutout to Simon Sinek).

Right now I feel like my company is on the verge of a huge transformation and a big "level-up" event: successfully offering our first large commercial residential investment as a syndication or partnership/joint venture. We've spent the last ~2 years taking stock of our experience, supplementing our knowledge through bootcamps, research, and mentorship (thanks DeRosa Group Accelerator!), and  developing our internal assets and processes so we can feel confident in our ability to deliver on our promises to future investors.

Now that we're here, we're ready to execute and are chomping at the bit to deploy some capital in a ripe and growing market statistical area. We chose Kansas City and I'd be happy to share all the reasons why with you - message me here if you're interested!

The last piece of our puzzle is finding the right money partners to work with. We naturally started with our personal circle of family and friends who have witnessed our journey from the beginning, we have also begun posting blogs on LinkedIn and our website, we've created a CRM database of all the potential investors we have met in our network, and are soon releasing our first recurring email newsletter for our subscribers.

The frustrating part of all this is that it feels like I'm pushing a rock up a hill that just won't make any progress. It feels like we're just spinning, working on developing our marketing materials and refining our processes like a car revving it's engine in park. I tend to think of things very tactically and I don't enjoy things that don't result in tangible progress. However, in the game of investor relations, and in any game that is based upon actual human trust and relationships, progress is not linear. Knowing and reminding myself of this when I start to feel like I'm not generating results has helped me keep my sanity. Also to the handful of people I have been sending test messages to, thank you so much for letting me blow up your inboxes :)

Does anyone have any recommendations for things I can do to help make this journey to finding a solid pipeline of investor partners click faster? 

I'm curious to hear about when your business went from being funded by your friends and family to being funded by your broader professional network. 

Cheers, best of luck, and happy real estate investing!

[Scott Trench]

Large Multifamily is hard for everyone right now. That's why I'm sticking with Single Family and small multifamily - I believe they are much more insulated from price and rent corrections. 

On average large apartment complexes just don't make sense. Across most of the US, but especially in the Southeast. I see you are in Atlanta. That market is brutal. If you are in Kansas City, maybe a little more optimism.

All you as the operator can control is operations. But so much outside of your control is happening to deals.

- We have the most supply EVER currently under construction. This will hit the South hardest, and West second-hardest

- We have insurance costs skyrocketing. This is not in operators control. It goes right to the bottom line, and right to valuation.

- We have taxes skyrocketing.

- Cap rates are still lower than interest rates. While it’s still possible to make money, you have to believe one or a combination of four things, strongly, to bet into a negative leverage environment:

1) Rents grow

2) Expenses decrease

3) interest rates will fall

4) cap rates will fall

I, and a lot of other potential investors just don’t believe any one of those things. Much less any combination, in 2024. So, I expect prices to correct, with cap rates increasing.

Without looking at your deal, if you aren’t assuming a 7-8% cap rate on the exit in your base case scenario, I’m not interested.

And no way are you making money on a deal if you are assuming a 7-8% exit cap. 

it’s not you, it’s the brutal reality of the market. 

Only thing worse than not raising capital is raising it and then having the market work against you while you operate to the best of your ability and still get crushed by that which is outside of your control.

I just watched a multi-decade veteran likely lose 100% of my investment, after executing his plan to the best of his considerable abilities. I’m not even mad. I respect him and may invest with him again. It’s just that he was helpless and will be until conditions change. 

That’s where I, and many other LPs are at right now. You have to combat this outlook. Make it make sense at the highest level. The best deal of all time in 2021 is getting wrecked and it’s hard to believe in greener pastures for multifamily until they stop building new units at record pace.