Sep 27, 2023
In recent years, social media has become a powerful tool for high-income earners who have a passion for real estate investing to both learn the basic concepts of investment underwriting, and to share that knowledge with peers and like-minded social media followers. However, taking the knowledge and networks gained from social media and actually leveraging them to raise equity and become a real estate investment fund manager can be very challenging. In this article, we’ll discuss some effective capital raising techniques, considerations for setting up pooled investment vehicles, and how to develop reliable deal flow. With these tools and concepts, you’ll have some helpful ideas to begin your journey toward becoming a successful fund manager.
Before we dive into the specifics of setting up a pooled investment vehicle, it’s important to discuss some effective sales techniques for raising capital. Here are a few key strategies to consider:
• Build Trust: Building trust with your network is essential if you want them to invest in your fund. To do this, you’ll need to be transparent and honest about your investment strategies, successes, and failures. Share your experiences and provide valuable insights that will help your network make informed investment decisions.
• Provide Education: Education is another key factor in raising equity. The more your prospective investors understand about the real estate industry, the more likely they are to invest in your fund. Provide educational content that covers a wide range of topics, from the basics of real estate investing to more advanced strategies and concepts.
• Explain why the timing is right to invest: Creating incentives for investors to make the decision to invest in a timely manner can be an effective way to encourage others to invest in your projects. Limited-time offers, early-bird discounts, and other incentives can prompt your followers to take action.
• Use Social Proof: Social proof is a powerful sales technique that involves showcasing the success of others who have invested in your projects. Use testimonials, case studies, and other forms of social proof to demonstrate the value of your investments and encourage others to invest.
Once you’ve built a network of prospective investors and established trust, you can begin to explore setting up pooled investment vehicles. Here are some things to consider:
• Choose the Right Structure: There are several different structures you can choose for your pooled investment vehicle, including Regulation D (506(b) and 506(c)), Regulation A+, Regulation CF, and real estate investment trusts (REITs). Each structure has its own advantages and disadvantages, so it’s important to carefully consider your options and consult with legal, tax, and investment professionals to choose the structure that best fits your needs.
• Develop an Investment Thesis: Before you can start raising capital, you’ll need to develop a business plan that outlines your investment strategy, goals, and objectives. Your investment thesis should also include information about how you plan to use the funds you raise, as well as details about the returns you expect to generate for your investors.
• Create a Private Placement Memorandum (PPM): A PPM is a legal document that outlines the terms of your investment offering. It includes information about the investment opportunity, the risks involved, and the terms of the investment, such as the minimum investment amount and the expected return on investment. It’s important to work with an experienced attorney to create a PPM that complies with all relevant securities laws.
• Market Your Investment Opportunity: Once you’ve established your pooled investment vehicle, you’ll need to market your investment opportunity to your network. Use your social media channels to promote your investment offering and establish why the time is ripe for the type of opportunity offered. You can also use email marketing, webinars, and other forms of outreach to reach potential investors.
• Stay Compliant: It’s important to stay compliant with all relevant securities laws and regulations when raising equity from your subscriber following. This includes complying with securities registration requirements, filing annual reports, and providing investors with ongoing updates about the status of their investments.
If you don’t have a reliable way to generate deal flow yourself, partnerships and joint ventures with other origination sources can be a great way to access high-quality real estate investment opportunities. An origination source could be any company or individual that specializes in finding and vetting real estate deals. By partnering with an outfit like this, you can leverage their expertise and connections to access deals that you may not have been able to find on your own.
When considering a partnership or joint venture, it’s important to carefully evaluate the terms of the agreement. Make sure that the partnership aligns with your investment goals and that you have a clear understanding of the risks and rewards involved. You should also work with an experienced attorney to review and negotiate the terms of the partnership agreement.
Overall, if you don’t have a way to generate deal flow yourself, partnerships and joint ventures can be attractive options for accessing high-quality real estate investment opportunities. By leveraging the expertise and connections of others, you can increase your chances of success in achieving your investment goals.
In conclusion, starting to raise capital from your network can be a challenging process, but with the right strategies and techniques, it can be done successfully. Building trust, providing education, explaining why the timing may be right to invest, and using social proof are all effective sales techniques that can help you raise capital from investors. When setting up pooled investment vehicles, it’s important to carefully choose the right structure, develop a business plan, create a PPM, market your investment opportunity, and stay compliant with securities laws and regulations. If you don’t have your own platform to generate deal flow, partnering with others can be a great way to quickly get off the ground. In exchange for bringing your group’s capital to the table, you can often negotiate better terms while still benefiting from the partner’s expertise, network, and origination capacity. By following these steps and continuing to provide value and transparency to your investors, you can take the first steps towards succeeding as a real estate investment fund manager.
Nothing in this blog is or should be construed as investment advice or an offer or solicitation of offers of investments. Both Real Estate Investments and Securities offerings are speculative and involve substantial risks. Risks include but are not limited to illiquidity, lack of diversification, complete loss of capital, default risk, and capital call risk. Investments may not achieve their objectives. Investors who cannot afford to lose their entire investment should not invest in such offerings. Consult with your legal and investment professionals prior to making any investment decisions.