Best way to have commitment from investors for Multifamily deals

[Alejandro Antonio Taylor JR]

Hey guys hope all of you are well and are staying safe during these times.

I had a question about partnering with investors in large Multifamily apartment investment deals. I wanted to know what is the best way to have a guarantee that investors who commit to investing a certain amount of money follow through with their commitment to come up with the funds once you put a Multifamily deal under contract? I’ve seen a lot of investor examples where an investor finds and puts a deal under contract and then starts to search for investors. I know you should already have some some relationships with investors lined up beforehand but what is your guarantee or security that these investors will come up with the money for the downpayment or the guarantee they will come up with the money on time before closing. If it’s just a commitment by word of mouth for example there is no guarantee and an investor could change their mind and then you’re not able to come up with the money for the deal. The idea that came to my mind when speaking with a real estate lawyer would be to create an escrow account where investors can place their money in even before a deal is put under contract. That way once you do find a deal you’re guaranteed to have the money to be able to close on the deal. That sounds like the ideal way to do it but not sure If it’s the best one. Any thoughts would be appreciated.

[Brian Adams]

@Alejandro Antonio Taylor JR  unfortunately, there is never a guarantee that an investor will actually fund their commitment. Sometimes the investor even completes their subscription booklet, "flakes-out" and never wires money.

Make sure you connect with a securities attorney regarding accepting money as there are rules you need to follow.

The best approach, in my opinion, is to always have commitments in excess of your targeted capital raise.

If you are raising $2.5 million, try to get commitments at 2x the raise ($5 million) knowing that some people will ghost you when you are at your critical time in the deal to get the transaction closed.