All Forum Posts by: Scott Morongell

@Danny Randazzo name of the game is cost of capital. If you continue to fish out of the same pond you will continue to catch the same fish. Getting on podcats, going to events, etc are all great but 99% of the passive investors there are conditioned for the same high returns when the market really doesn't support that today (unless you plan for the stars to align on your deal). That being said, there are many investors out there who merely want to match what the stock market is offering them. Find the pond that is loaded with those investors and you will be very happy. 

@Brett Richardson I will start off by saying yes a mentor or coach will help you a lot but is certainly not for everyone. If you have time on your side and flexibility in your schedule I would suggest finding a local firm that you can intern or work for. This will teach you the business in a hands-on way that no coaching program will do. If you do choose the coaching or mentor route, keep in mind that 99% of the "gurus" that you will stumble across have been in the business only throughout this last upswing and haven't been through multiple market cycles. Those same "gurus" also make more in coaching than they do in real estate. They teach their students enough to be dangerous but not enough to do deals on their own so the student 9/10 times brings the deal back to the "guru" to help close it taking most of your deal you worked your tail off for. In short, they are creating bird dogs with their programs throughout the country.

I personally chose to seek after a firm that was doing deals but not offering a coaching program. I paid them for their time and had no problem doing it since they were not local to me so I couldn't exercise the option to try and work for them to learn the business. 

 A lot of it is getting on the phone with investors and having meaningful conversations. You need to understand what they value. If all they ever care about it what your making on fees or splits they are probably not a good fit for you unless your a new syndicator dying to get a deal across the finish line. The syndication business is like anything other business or product, you get what you pay for. Good sponsors don't work for free and often spend more time vetting the passive investors on a call more than the passive investor vetting the sponsor.

@Dennis Johnson if you plan to do a 506b you can only go to pre-existing relationships for the deal. If you go 506c you can advertise to the world with the caveat being only accredited investors are allowed into the deal. Raising capital is a never-ending task that starts way before you ever have a deal. Since you already have a deal I would suggest creating a solid investment summary packet, do a webinar for potential investors (record it in case people can't make it), offer tour dates for investors to come see it if needed, and maybe a feel-good drone video or something. 

Here are some ways to constantly be raising capital and getting investors into your pipeline:

• Create a podcast
• Go to networking events
• Create a meetup
• Write articles
• Go on others podcasts
• Host educational webinars

@Kent Ritter Brian hit the nail on the head with this one. Newer passive investors continuously ask me if I invest in our deals. It such an irrelevant question in comparison to the bigger picture of the deal and really my company. The real alignment like Brian mentioned is the fact that we are the main guys signing on the loan and the lender is going to make sure I'm compliant. The other part is the fact that I cannot open up under a new llc if a deal tanks and screw over investors. With the digital world we live in today, it's nearly impossible to get yourself a restart in this business. 

So to answer your question, track record and knowledge are far more important than the GP investing in the deal. Even if the GP doesn't invest in the deal they will have a fair amount of money already laid out in pursuit costs upfront prior to the deal closing. I do invest in our deals and passively as well but that's why I got in the business in the first place, not to use it as leverage and a talking point to our investors to say "I am aligned with you".

@Vernon Trice III I think Michael Blanks team does deals in Huntsville. I cannot speak to their knowledge or skills in the business but I have seen them do deals there. 

One of the reasons I have seen over the years as to why they are offering just a straight split is because they simply plugged into someone's old school model and don't know how to build out their own with a pref tab with an option of adding a waterfall. You could get even more creative adding class A and class B shares with straight pref equity on one and your standard pref with splits on the other.

The only thing you could argue about offering a straight split is that an operator may not be as inclined to sell a deal that is somewhat off the beaten path compared to the proforma. If the deal is underperforming with a pref in place the GP knows they will only have a chance to receive profits upon a sale. It could force them to make a selfish, hasty decision to get their profits and walk away from the deal. On the flip side, if the GP is receiving a portion of the cashflow they could be more inclined to hold on, add extra effort, and try to turn the deal around. As an LP you can argue, well if the deal doesn't end up coming around and they have been receiving profits since day one you may be pretty ticked. 

Either way, I think 9/10 times offering some sort of a pref does make the most sense.

That is the beautiful thing about real estate and syndications. You can structure these deals in nearly endless ways.  

@Jose Ortega make sure you're asking them what the cap rate is for a specific asset class and type of deal. For example, ask, what is the cap rate for Charlotte on a B class deal, in a B market, value-add, over 100 units? This will narrow your broker's range of cap rates they are giving you. Let's assume you have done this though already. Ask the brokers if they can provide a Co-star report for the subject market. It will give you a good feel for the cap rate and range between the different Class types. 

The best tool is for you to start underwriting deals in that market and to see where they are trading at. 

@Markus Jackson it sounds like your off to a good start. When raising capital make sure you spend time with an SEC attorney so you are staying compliant. After you know the rules I would suggest this:

Start telling everyone in your immediate circle who the new you is and what you're up to. Become the expert in the real estate space. Ask your network this question on an individual basis, who do you know that might be interested in investing in real estate? People will refer friends and the people who you're asking the question to if they're interested will self select themselves. From there, you will naturally grow over time. There are no shortcuts to raising capital. 

Once people start finding you and wanting to hear more about your investments I would ask them what types of returns they're looking for. Money is made in the money. Your cost of capital will determine how competitive you can be on deals and ultimately how much ownership you can keep in a deal.