March 12, 2008

Real Estate Syndication Questions & Answers: Part 4

As we prepare for our seminar program that covers the concepts of successful syndication, many people are sending in questions that they have about the topic. We are organizing them into categories and I am answering them so that everyone who is interested in learning how to make money the same way that Wall Street makes money, can begin to understand how the business works.

In the coming weeks, I will continue to answer the real estate questions that come in using our Wednesday column. Feel free to submit your own questions as well. To register for our upcoming live event, go to www.SyndicateFast.com. To submit a question of your own, go to www.joelblock.com/capital.

More Questions about Real Estate Syndication

How can I find qualified investors with money? Investors with cash to place into deals are everywhere. They abound in our society. The last ten years has created more millionaires than any other time in history, and those people are desperately seeking places to place their capital. Many of the wealthiest people have put their money into hedge funds, which are basically pools of capital that wealthy people establish for the purpose of acquiring assets, using, in many cases, a syndicated model. Those hedge funds invest in other people’s syndications as well. But until you’ve developed a track record, those hedge funds on Wall Street and in other parts of the country are unlikely to become your customer. You have to start by asking people in your neighborhood, in your church, in your synagogue, and in other places where you congregate with others, if they would be interested in coming into a deal with you. My experience is that most people will always say that they are interested. On the other hand, not everyone comes through, even after their demonstration of enthusiasm. Also, it’s better to be specific, rather than generic. If you say to someone, “would you like to get involved in the deal if I find one?” nearly everyone will say yes. But when push comes to shove, showing them a specific deal with specific numbers that offers them a specific return will give them the ability to say yes or no. Most people will turn down an opportunity that’s generic, but everybody will be forced to think hard when you get specific. So be specific and network like crazy, telling everyone about the business that you’re in and the deals that you’re doing.
What do you do if all of your friends are broke and you have nowhere to go to raise money? Get a job. Not everybody’s going to make it in the syndication business. Syndication is a structure that makes it possible to raise money, but it’s not a shovel for pulling the money out of people’s pockets.
Is the money raised enough or do you also borrow money to buy the real estate? Depending on the nature of the asset that you’re buying, the cash that you raise may not be enough to purchase the property. If you’re buying land, the common practice is to pay for it fully in cash so that there are no carrying costs. However, if you’re buying income properties, it’s generally considered acceptable to leverage those properties and borrow money to make the capital that you raised go further, allowing you to buy even larger properties. Be careful, though, not to over-leverage the properties, because you’ll find yourself in a lot of trouble. The maximum that usually works in a syndication environment is 70-80%.
Can investors put their money up in stages, or do they have to put it all up at one time? Common sense tells me that when somebody offers you the money, they should put it all up at one time. You never know what tomorrow’s going to bring. Someone could need the money tomorrow and not have access to it. In other words, they might not be able to give it to you. You may underperform their expectations and they won’t want to give it to you. A number of issues could occur that would be disadvantageous to you, making it impossible for you to ever get the capital in the future. So when someone offers you the money, take it and get it all right away.
How much money do you raise for your projects? It’s imperative to raise the down payment for the project and you calculate that by knowing exactly how much money will be borrowed against the deal. But in syndication, because there are no people who are accessible to write checks in the event of a shortfall, meaning that the syndicator is the one who becomes responsible, you also have to raise a good reserve for working capital. Make sure that you create a significant working capital reserve, because otherwise, the first place that the investor is going to look will be to the promoter for reimbursement or additional carrying costs.

All this material and a lot more will be addressed at our live seminar in April called “How to Raise Money for Real Estate: Harnessing the Power of Syndication.” If you are a real estate professional or someone who is involved on the capital side either as an investor or facilitator, then this incredible two-day event is for you. For more information, go to: www.syndicatefast.com.

Real Estate Syndication Tele-Seminars!

Join Joel Block and his Expert Syndication Instructors www.syndicatefast.com

About Joel G. Block

Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses.

Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.

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