Fortunately, there are numerous methods for raising money for a real estate fund. While it is possible to profit from real estate investments with no money down, it is not very realistic to follow the path of hoping for seller financing or to rely solely on hard money loans. As this website is devoted to Commercial real estate syndication, it should come as no surprise that syndication is the finest method provided you follow the rules and know who to listen to.
Quick Guide On How To Raise Capital From Accredited Investors For Apartment Syndication.
- Possess A Proven Track Record.
Accredited investors seek out investment possibilities from seasoned sponsors with a successful track record. You must put in a lot of effort to establish a solid track record if you don’t already have one.
- A Strong Investing Thesis Should Be Developed
Accredited investors are interested in learning why they ought to contribute to your apartment syndication. The prospective returns, dangers, and advantages of the investment must all be included in a strong investment thesis.
- Create A Solid Marketing Strategy.
In order to reach accredited investors, you must create a solid marketing strategy. This could involve using online resources, attending trade shows, and networking with other investors.
- Make A PPM, Or Private Placement Memorandum.
The terms of the investments are described in a PPM, which is a legal instrument. It is crucial to have a PPM that complies with SEC requirements and is well-written.
As a sponsor seeking to establish a syndication, you will need to fill out this form, which is one of the most significant ones. If you don’t have a PPM, you can’t raise money for real estate. Both accredited and skilled investors need to be given a clear explanation of the investment alternatives.
It involves more than just ethical corporate conduct. Additionally, the SEC requires it for many syndications. The law requires that prospective investors be accurately informed.
- Recognize The Fundraising Restrictions.
The amount of money you can raise from authorized investors is subject to a ceiling. Before you begin fundraising, you must be aware of these restrictions. The legal entity of the syndicate must be registered with the SEC since raising money through real estate syndication is very similar to issuing securities. As a result, it must abide by the precise rules that the regulating authority has prescribed.
Fortunately, there are a few solutions available to real estate syndication companies in this regard. You can register your syndicate and benefit from looser rules, or if you don’t mind abiding by more restrictive rules, you can strictly pursue the huge money. In any case, only sponsors should be concerned about obtaining funds under the various SEC laws. Passive investors won’t be impacted by this in terms of profit splits and preferred returns.
The rules you need to be familiar with are Rule 506(b) and Rule 506(c), so take that into consideration.
- Rule 506(b)
Syndications filing in accordance with this rule are permitted to solicit any sum from authorized investors. However, they are not permitted to conduct general solicitations or run any kind of promotional campaigns for their products.
Up to 35 non-accredited investors and an unlimited number of accredited investors may participate in syndication under Rule 506(b).
2. Rule 506(c)
The SEC’s Regulation D 506 adds an interesting clause to the earlier rules with its 506(c) rule. If you file under this rule, your syndication will be able to market your offer, but you won’t be able to raise money from sophisticated or non-accredited investors.Each guideline has some advantages when it comes to finding equity partners, depending on who you’re aiming for. The real estate laws that regulate syndications are not complicated to comprehend, and a real estate syndication lawyer can always help with that.
- Do Not Rush.
It takes time and effort to raise money from accredited investors. Don’t anticipate getting all the funding you require overnight.
Here Are Some Further Pointers For Obtaining Funding From Qualified Investors:
- Be Ready To Respond To Inquiries. The property, the dangers, and your
investment thesis will all be heavily questioned by accredited investors. Be ready to respond to these inquiries in a direct and succinct manner.
- Cultivate Connections. Making connections with other investors is an excellent
approach to raise money. Attend industry gatherings, network with other investors, and promote yourself.
- Be An Expert. Being professional is crucial when you’re trying to raise money
from authorized investors. This entails producing a polished PPM, being ready to respond to inquiries, and following up with investors.
As informed investors, we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.