Finding Investors for a real estate Syndicate

Prospecting for possible investors for your real estate syndicate is one of the most important things you will do. This process starts long before you need the investors to write the checks. Finding investors is a prospecting job and converting them into syndicate investors is a function of education and salesmanship.

Because you can not advertise for investors because of the security rules, you will use face to face meetings, word of mouth advertising and indirect prospecting. You are simply informing a group of people that you are forming a real estate syndicate that presents a great investment opportunity. You show them a prospectus that details a typical, but not a specific property that might be syndicated. You provide a discussion of the benefits of real estate syndication for the nonactive investors. As you are not offering information on a specific property this can not be interpreted as an offering of any kind of securities, such activity is educational in nature.

Most of the prospective investors that might consider joining a real estate syndicate will be interested in

how a syndicates work, why you are doing it this way, what the returns will be, how the returns are divided up, how long the investment will be, the risk and liabilities, along with your experience and qualifications. Additionally you do not want to disclose details on a specific property until you have that property under contract. At this point you are prospecting for potential investors.

This pre-selling is an essential part of your success. If ten people tell you they might be interested please contact me when you have a specific opportunity, you can expect 1 or 2 at most to actually write a check when the time comes. The better job of pre-selling you have done, the better your chances of getting them to invest.

Prospecting:

• Make a list of potential investors.

• Define the syndicates objectives.

• Prepare a sample prospectus.

• Contact prospective investors and make a presentation.

• Modify your presentation and prospectus based on feedback.

• Make a list of positive responses and estimate the amount they might commit.

List potential investors:

The list should include everyone you know, relatives, friends, associates, everyone who might have even a remote interest in real estate investing. Don't discount anyone, just say you are forming a real estate investment syndicate, if they want more information to let you know. That means everyone you know or talk to.

Keep a list of prospects and add to it daily, make notes on who you talk to and any responses. I know it is tedious and time consuming, as well as difficult. But that is the nature of sales and you do have a unique offering with little to no competition in your neck of the woods. Most people find the prospect of real estate investing interesting and they will enjoy the education. You never know who will help you get this going, so talk it up.

Make speeches at gatherings, start a web site like this one, write an article and put it out for publication, start a blog, net work everywhere you can, and so on. You are looking for any way of getting the word out that you are an expert in this field and if anyone wants further information please contact you directly. Just make your actual offer via a prospectus and the investment package, on a one-on-one, face to face meeting.

Define the syndicates objectives:

The syndicator has the rewards and objectives particular to himself as well as those of his investors. When setting up the syndicate he must consider any state requirements and limitations on his activity as well as what returns the investors will expect, except and need to motivate them to invest in the syndicate.

Full disclosure of all the details of the amounts that will be paid to the syndicator will be required in order to comply with the disclosure rules and avoid future problems with investors. These might include:

• If the syndicator is a real estate agent, any commissions that might be paid.

• Amount of management fees payable to the syndicator.

• Any fees paid to the syndicator for organizing or promoting the syndicate.

• A share of the profits going to the syndicator

• A share in the capital gains payable to the syndicator.

Preliminary prospectus:

The preliminary prospectus lays out the format for the a typical property that might be syndicated. The prospectus should include a descriptive statement of a suitable property type, an estimated distribution of cash flows and returns to investors, and a sample of a proposed partnership agreement.

Give sufficient details so that prospective investors will get an idea of the types of properties you are considering syndicating. Be as realistic as possible without being property specific. Include an explanation of cash flow and cash flow distribution, tax considerations, as well as the potential equity buildup from mortgage reduction.

A sample of a typical partnership agreement should provide details of management, divisions of profits, mortgages, any future assessments from investors if contemplated and a risk assessment, as well as a dissolution statement.

Contact prospective investors and make a presentation:

Make the presentation in person when ever possible. Have the investors presentation package well presented in a folder. The investors presentation folder should contain, A letter to potential investor, a prospectus, a referral form, a subscription form, a self addressed and stamped return envelope and a copy of your resume. Have in your briefcase a sample of a limited partnership agreement encase you need it. (See a self storage example for samples of these forms)

Using the preliminary prospectus as an example tell your prospect how the syndicate will work. Let then know you are not there to sell them anything but only to inform them of a potential future investment. You are not there to sell securities and that an offer can only be made by a prospectus on a specific property when you have one to offer should they have an interest.

The purpose of the meeting is educational to explain the workings of a successful real estate syndicate.

A prospect should recognize the obvious benefits to joining with others and with an expert syndicator to make profits in real estate. Most investors will like that their liability is limited to the amount they have invested. They will see the value in investing in a larger property acquisition that provides for professional management.

Go over all the different ways your potential project can make money, as well as how risk is reduced and limited in a real estate limited partnership. Focusing on the advantages and the profit potential to the investor as well as the advantage of professional management of the syndicates affairs.

Most potential investors will have an understanding or real estate in general. Most have an interest in investing real estate without the headaches of ownership. You may well find a ready acceptance to your promotional road show. Ask if they would be interested in a real estate syndicate investment in the near future. Ask them to review the information you are leaving with them and tell to feel free to talk it up with anyone they night know who would be interested.

Ask them to invest.

Modify your presentation and prospectus based on feedback.

Ask the prospect what they think and do they have any suggestions to make. After you have met with a prospect analyze the meeting and make any needed adjustment to your prospectus and or your presentation.

Make a list of names of positive responders and estimate the amount they might commit.

Keep a list of prospects, their meeting notes and any amounts that they might invest. If they turn you down on a project contact them when you have another offering. Once on your list, always on your list.

Keep adding to your prospect list and after you no longer need investors keep adding to the list of prospects for the next deal. Prospective investors are a valuable commodity.