Investor · Johns Creek, GA · Member since 2017 · 463 posts · 488 votes
As a syndicator, I have encountered a large number of people who could be my potential LP's. They say that they've already invested in the stock market. Why aren't people not willing to pull out of the stock market and put money in real estate? The stock market isn't necessarily stable, it give you higher returns. Any thoughts? Have you encountered those who favor the stock market over real estate?
Yes, they're out there. Syndication is great (I'm a believer!) but it does definitely have downsides. It's not liquid and performance is heavily dependent on the sponsorship team.
My recommendation to you is that you move on from those folks, keep them informed about how awesome your real estate business is, and keep talking to other investors. Some of those stock investor folks will get interested eventually, and some will not.
@Charlotte Dunford, I think you're getting polite "nos" to your pitch. Perhaps take a look at your offerings, if they fit the needs of your potential investors, and if you are spending enough time building a trusting relationship with them BEFORE asking for their hard-earned cash.
Yes, they're out there. Syndication is great (I'm a believer!) but it does definitely have downsides. It's not liquid and performance is heavily dependent on the sponsorship team.
My recommendation to you is that you move on from those folks, keep them informed about how awesome your real estate business is, and keep talking to other investors. Some of those stock investor folks will get interested eventually, and some will not.
@Taylor L. Another avenue would be to consider aligning with a syndicator with a long enough track record to ease your investors concerns. You may have to give up something of value in the beginning, (e.g. equity), but if it helps to get the ball rolling then it maybe worth it.
@David Danforth that's true, but you're never going to close everybody. If they're hesitant about real estate as an asset class, improving your team isn't super likely to make a difference in my experience.
@Charlotte Dunford many people who are invested in the stock market, but have yet to taste the beauty of real estate, often will not believe the ROI offered on LP investing. That being said, no matter how put together your OM or investor packet, people want to see track records, which makes it difficult for new syndicators to find investors. They are out there, so just keep doing your thing, girl! Don't let the no's discourage you from chasing your goals!
I've found that people just don't understand it, and think it's too good to be true. Also, when you sell stocks you have taxes to pay, which is why I've been slowly moving money over. As someone else said, stocks are liquid and MF Syndications not so much. At the end of the day though, if they understand it they will invest.
We are brainwashed to listen to financial advisors, and if it says "fidelity" it must be safe. You are fighting those long-held beliefs as well.
A lot of it comes down to your relationships with your investors and your track record. If you're just starting out and have not built such track record, it is hard to understand for your potential investors the full advantage of syndication investing. So my suggestion is to concentrate on building such track record while maintaining the relationship with your investors. When the time comes, they will come to you when you can show them your results. To shorten your path you can align yourself with an experienced deal sponsor and leverage their track record.
Most investors want to diversify out of stocks. I have not gotten that objection, so it may be your approach. Take some time to reflect on how you are positioning yourself. Are you asking for them to invest or are you providing them an opportunity to invest in real estate, which is a safe secure investment with superior returns to stocks?
If you have no experience, then who on your team has experience? Why would they trust you with your money?
Educate yourself, build relationships with successful companies, property managers, etc and then educate your potential investors.
Not to add on what other have said but in addition to these individuals just not being sold on real estate or your ability to close or not, most people don't like doing anything that is "against the grain."
They've been told by their parents and friends that if you get a good job and contribute to your 401(k) that's not only enough, but that's what "reasonable" people do. They think that their 401(k) will probably be enough (I ean that's what their parents are doing/did) and that Social Security and Medicare will fill in the gaps. (cue Bobby Kiyosaki saying "now see my rich dad...")
They see Real Estate as more risky, full of speculation and can only think back to 2008 as an example of why not to invest in real estate. There will always be these people. They see the public markets as being regulated and safe, I mean they are "public". This of course is all ridiculous as public equities can have more speculation, are heavily manipulated and can be extremely volatile.
That is all changing, however, as more and more individuals don't see the value in their money managers or financial advisors who sell them mutual funds with excessive fees. More and more public market investors are using low cost index funds and managing their own investments as you don't really need an advisor to tell you to buy the S&P500. As this occurs the next step for the "woke" investor is to look at alternative investments, specifically Commercial Real Estate as way to diversify and hedge against inflation and recessions.
Many people get this right away out of intuition or luck and never go to the public markets and go straight into real estate investing, however for busy professionals who are the most common passive investor they started investing into their 401(K) because their company offered it and haven't had the time to jump into real estate investing.
By building real relationships and telling a true story of why you are doing what you are doing not just what you are doing goes a long way to show them the light.
Just keep going and eventually you'll have success. It may take 25, 50, 100 meetings but it'll happen if you persist.
The stuck part of this is the lack of education. Some feel that real estate needs to be entirely owned as part of their mindset. Some have not been educated or explained that group purchases are something to consider. With that said, they might think its more of a hassle with pulling funds out of the market as well. Its how you can help them transition into this mindset. Some structure their portfolios as such 70/20/10 thats percentages of stocks/bonds/cash or a mixture similar to that. The thing is learning from the soft no's and building on that.
@Charlotte Dunford -- The first thing I see is that you do not have a picture. Then I looked at your profile -- "syndicator". I am not positively moved... Sorry to be blunt.
It's certainly a matter of personal opinion, but I see the stock market as a component of a diversified strategy. There are many on this forum that do not care for diversification. Just to get it out of the way, I hear your complaints, this is just one perspective.
If you were to take my viewpoint on this, you are not choosing the stock market OVER real estate. Instead, you are doing both at once. Your ratio is a matter of personal opinion + risk & liquidity requirements.
People spend a lot of time talking about risk, but I hear fewer conversations on liquidity. We can talk at length about the relative risk of stocks vs. real estate. I think it's more settled that the stock market is more liquid, and that should count for something.
@Trevor Ewen Thanks for your comment. Are you saying that people are cautious about syndication due to the fact their money is tied until the project done?
Note that an earlier post mentions that you may be getting polite "NO"s and suggests your pitch may need some work and that you may need to build trust. I am simply attempting to point out that if you don't describe yourself in the profile and you show no picture, you may not be building trust.
And yes, I have no picture, but I don't want your money... my picture is coming...
@Spencer Gray great points. Completely agreed. To add to your comment. I think the problem can also be that I'm not talking to the right people. I'm essentially selling a service. To make a successful sale, 3 things are needed: 1. A true need 2. Decision making power 3. The budget. Lacking any of these 3 factors, no sale. I think I've been talking to people whose focus in life right now is not to invest this no true need... they often have their own business and they invest every single penny back to it.
@Charlotte Dunford I have found that the people I speak to who mention the stock market are simply unfamiliar with real estate. They don't understand the benefits it can provide. It takes education on your part to fill them in.
Like many on here have stated, its most likely due to a lack of education. Most of the time, investors don’t know what they don’t know and they have fixed beliefs on their past experiences.
Know the pros and cons of each asset class so that when you do talk about it, you can help them transition into a sophisticated investor frame of mind. You cannot change their way of thinking, but you can help them to understand.