All Forum Posts by: Jonathan Twombly

When I first started out in this business, I was very intimidated when dealing with very nigh net worth potential investors. (Okay, I'll admit it: sometimes I still am!) I would question my own credibility and begin a negative thought spiral, by telling myself things like, "You're new at this, why would they invest with you?" or "They're going to think you're a wannabe because you haven't closed any deals yet and you have no track record." Of course, by the time I got through beating myself up, I had thoroughly talked myself out of the chance to make a new connection with someone who might really help me some day.

What I learned over time, however, was that high net worth people think differently. Unless they inherited their money and spent their entire lives partying, they are usually quite sophisticated about investments. That means that they know that the possibility exists that they will lose some or all of their money; it goes with the territory. What worries them more is people trying to take advantage of them and their wealth. Put another way, sophisticated wealthy people are far less worried about losing money honestly, as when an investment is done in good faith but just doesn't work out as planned, as they are about losing money dishonestly. They may not like losing money in a bad investment, but what they really want to avoid is losing their money to thieves.

This leaves the honest-but-inexperienced person in a relatively good position. Many wealthy people will invest with relatively untested entrepreneurs if they feel they can trust them. So, how do you get wealthy people to trust you?

The answer here is simple. Old-fashioned relationship-building. If you know wealthy people already, you are a step ahead of the game, but if you have a chance to meet very wealthy people, focus on how you can build a relationship. And, as with anyone else, the best way to build relationships is by helping other people with things that matter to them, without looking for anything in return. Build goodwill. Build good karma. Most importantly, build trust.

Obviously, this takes time. Occasionally you get lucky with someone who trusts you right away and just happens to be looking to do real estate deals. But, in most cases, you need to put in the hard work of building trust over time, by building a relationship based on what you can give. Never, ever sell them on your deals. Do, however, talk to them about what you're doing. It will sink in over time. Perhaps they have been interested in potentially investing with you since the day you met, but they have been watching you over time to see if you really are as trustworthy as you first appeared to be.

The great thing about trust is that it is transferrable from one activity to another. If you show someone that you are trustworthy by, say, being the volunteer who always shows up or by executing a leadership role in an organization very well, then that trust will spill over into your other activities. If you slowly demonstrate trustworthiness over time in another activity, and also tell people about your real estate deals in an indirect, non-salesy way, the trust you build up in other activities will get transferred to your real estate business, and people will begin to ask you how they can get in on your deals.

The bad thing about trust is that once you lose it, it's very, very difficult to get it back. That is why it is especially important to keep your word, follow through, and execute. Overtly selling people who have not indicated an interest to you is another way to lose trust. It will take time, which can be frustrating, but if you trust that the process of trust-building works, it will greatly benefit you in the long run.

So, to sum up, if you want wealthy investors, look for ways to build relationship with them by helping them, build trust by demonstrating trustworthiness in other areas, and never, ever sell them on deals unless they show a clear interest in being sold. If you follow these steps, you'll realize that very wealthy people are not intimidating. They just want to be treated like other people, and not like a big dollar sign.

Aren't you investing through an LLC or other corporate form? If not, you should be, to limit liability. Form a company with a US address and that might solve the problem for you. Don't use a PO box for the address, though. Sometimes you can go to a place like FedexOffice or UPS Store and use their address without having it be a PO box. Or, if you have family in the US, you could set up the company at their address.

@James G.

The term of the fund will sometimes be dictated by the bank; the banks will want the term of the fund to be at least the same length as the loan term. Locking down low rates for ten years is great, because it really increases your ability to time the sale; though you have to have patient investors. I tell my investors that my goal is to sell in 5-7 years, but make sure they understand that the documents provide for a longer term. I would put in an ability to extend, but put it up to a majority of the membership interests to vote, as one of their major decision rights.

As far as legal documents are concerned, I am not a securities or a property lawyer, so I farm that work out to people trained to do it. I know only enough about those things to keep the lawyers honest. As for syndication documents, the cheapest I've seen them done is for a flat fee of $6,000, so if you are doing a very small transaction, this could really be a big expense. Perhaps some other members on this site know lawyers who can do the job more inexpensively?

@Account Closed

Nick, I do structure an acquisition fee into the deals, to compensate me for the time, effort, and risk that I incurred to get the deal over the finish line for the investors. The fee is 3% of the total equity put in by the investors. I know there are some people out there who take more, but my feeling is that you should make your money on performance, not just getting the deal done. Moreover, the higher your fee, the more equity you have to raise, which reduces your investors' returns, and makes your deals harder to sell to investors.

Another thing I neglected to mention is that I offer my investors a preferred return, usually 8%. We structure the payments so the investors receive their 8% first, we get a 2% manager catchup next, and then anything above that is split 80/20 in the investor's favor. Both the preferred return and the catchup are cumulative, meaning that if they are not fully paid in a given year, the deficit must be paid in future years until paid off.

James G.

We do put our own money into deals whenever we can. In that case, we wear two hats, so to speak: we are both sponsor and investor, and the equity we put in gets treated like everyone else's equity. As investors, we are subject to the same fees as the other investors, etc. We invest through a different entity or as individuals to keep things organizationally clean.

Hope this helps.

My firm, Two Bridges Asset Management LLC, deals in assets in the $3-10mm range, requiring $1-3mm in equity. In our structure, the investors put up 100% of the equity, but when you are dealing in those kinds of amounts, they are not very happy with a 50/50 split. We structure the deals to provide a 1% asset management fee on the equity (which should be increasing over the holding period) plus 20% of the upside on the deal. This works out to about 23% for us and 77% for the investors over the entire lifetime of the deal. We don't vary the structure, which gives investors certainty, and it is a split that they feel is equitable (and, thus, we hope, will keep them coming back).

Thanks, MaryAnn and Will. MaryAnn, we're active in your area, as you probably saw. What a great place for multifamily!

Hi Everyone:

This looks like a great community, and I am very happy to be able to join. Thanks to the founders for creating it and to all the members who have already made this a thriving place to discuss our mutual interests.

By way of introduction, my name is Jonathan Twombly, and I run Two Bridges Asset Management LLC. We're based in Brooklyn, NY, but we invest solely in the Southeast (particularly the Carolinas) in MFRE assets, on the thesis that the population of people who want to rent B & C apartments there is growing far faster than the supply of B & C apartments, which can't be newly built but can only age into the category. We just completed our first deal, for a 102-unit property in Spartanburg, South Carolina called the Valley Creek Apartments. And we're looking for more.

I'm a former lawyer. I used to litigate commercial cases in big New York law firms, before gradually shifting into real estate and hospitality litigation. In 2011, when I became a victim of the Great Recession, I decided it was time to pursue what I really love, and I left law and went into real estate full time. I formed Two Bridges in the beginning of 2013.

I'm looking forward to contributing what I can to this great community. If there is any way I can help you -- related to real estate or not -- please let me know.

All the best,

Jonathan Twombly
President & Managing Member
Two Bridges Asset Management LLC