Hey Josh!
It's not impossible to raise capital with little to no experience, but it's harder. Think about it and put yourself in the shoes of the investor. The first 2 things you want to build is your REPUTATION and RELATIONSHIPS. If you don't have these, I would avoid raising capital, but here's some tips on top of my mind:
- Sometimes, it's better to start with debt instead of equity. Or offer a mix, like x% interest + 30% equity ownership. Or x% Interest + 50% ownership. At first, you will need to offer something really interesting to your investors.
- You need to be the best in terms of knowledge in your specific asset class. Make sure you know the in's and out's of the asset type you're looking to invest in. Because investors love to ask questions. You want to be the reference (in terms of knowledge)
- Understand how to do the financial modeling of this type of asset or if you outsource, make sure that person is available when you pitch. There's specificities for SFH, multi res, industrial, commercial, self-storage, hotels, etc. Make sure your financial modeling is SUPER conservative with a lot of stress tests. If you raise money, try to present the pessimist scenario.
- Try to put all the steps of a deal in a project management software like Asana, Monday, etc. When I say all the steps, I mean all the steps. From the ad you create for your deal flow to the cash flow distribution after you exit the project.
- Make sure you are surrounded with pros who's taking care of your financial compliance, SEC compliance, IRS compliance, legal compliance, etc.
- Understand syndication structure that you want to offer. Example: Pref of 8%, catch up 2%, then split 20/80 till 15%, then 30/70 after. Think about the management fee, acquisition fee, etc.
- Understand the rules of the syndication or the fund world (Reg D 506B vs Reg D 506C). Who do you plan to target (accredited investors or not), do you plan to advertise to the public, Do you need an RIA, etc
- Make sure you know what to look for in a PPM, LPA, subs docs, etc if you don't do them by your legal team. Some investors loves to add some clauses that could hurt you. Sometime saw investors add clauses that were like put options, but in the real estate market. The GP got screwed and were force to buy the LPs shares at X$/share. Crazy.
To be quite honest, if you don't have any experience at all, I would avoid AT ALL COST raising money. You might burn your reputation and relations. ESPECIALLY in this economic era.
I think your best bet would be to go through your rolodex and ask them what they are looking for (asset type, specific returns, timeline, etc) and become a bird dog/wholesaler where you would sell the deals you find. You can ask for a small share of the project if you want. Focus on finding good deals, build a 1 pager/OM that shows the key criteria's of the projects (that will of course fit the investors criteria's). Show that the deals you find are really good, your presentation/OM are good with good underwriting/financial modeling.
After a couple deals you do like that with a key player, tell them that from now on, you would like to manage the project yourself. You offer them minimum return of 8% on their cash, and then split the rest 20/80. The more you do projects with them, the more you can ask for more in the partnership.
I started real estate more than a decade ago, trust me, I did all type of deals and saw all type of stuff. Even created and launched a real estate fund. Raising capital sounds easy, but it's not. You deal with other people savings, and if some problems occur, you might have huge problems with the SEC.
Please don't take my comment as negative, it's quite the opposite. I encourage you to become the best in the asset class you are aiming.
Good luck!
Francis
