There’s more than one way to tackle fundraising for real estate deals online. It has become much easier to syndicate investments online thanks to new technology.
There are multiple ways to approach syndicating, partnerships and crowdfunding real estate investments. One is having a ‘money ready a fund’. That means raising the money, and then going to look for a property. Some prefer that method as it gives them the confidence in having all the cash in advance. The downside can be winding up with a lot of idle capital, and having to make up for lost months of returns when it comes to payouts to investors.
The other option is raising the money after deal is vetted and ready to go. If you take this route, just be sure you have some verbal commitments in advance. Because you don’t want to end up having to go back to the seller to push back the closing date because you didn’t raise enough capital in time.
Here is how the process works in seven simple steps…
Get the Deal Under Contract
Go out, find the deals, and put them under contract. During this time notify partners of the upcoming opportunity. Who you can promote to will depend on what type of regulation you are operating under. Often at this stage it may only be established relationships already in your network.
Obviously it is wise to conduct a good amount of screening and projections up front, before going to contract. After securing some interest and the property is under contract continue with the deeper due diligence. The inspections, contractor quotes, title searches, etc.
After it gets the green light, and no red flags come up and your assumptions are still on track, start raising money.
The money raised needs to be enough to cover down payment, plus renovation costs and some reserves. This is usually at least a 25% down payment and the remaining can be provided by a bank. You may also invest alongside your partners. It’s best to raise more up front, versus going back to your investors once you run out of money.
The Legal Stuff
You always want to coordinate with an experienced attorney to get this side done. Everything needs to be laid out to partners, especially risks involved with investment. It’s always best to give them more disclosure to cover yourself. You want to make sure they fully understand everything, and that you are covered.
Depending on what rule you are raising funds under you can solicit to the public, only to accredited investors, only stick to established relationships. You can also ‘test the waters’ and gain commitments to prove your concept before finalizing your filings. Understand how these different regulations work, which is best for your desired structure and what the legal costs are going to be. Your website can also prove to be a great asset here in helping to stay within regulations and streamline any checks needed to ensure your investors qualify for your offering.
You may use SyndicationPro to raise capital under Regulation D exemptions like Rule 504, 506(b), 506(c), Reg A, and Reg A+.
Publish the Offering Online
Publishing your syndicated and real estate crowdfunding investments online has more benefit than just gaining visibility and making it convenient for investors to participate. It’s also valuable for enabling your investors to have everything at their fingertips. They can go there and view documents, which will include the prospectus and private placement memorandum, as well as updates. Having a robust online platform to handle this is going to be critical for managing investors over time and still having the time to do your best work at finding and managing the deals and profitable exits.
SyndicationPro technology has been used to publish and manage capital raises across millions of dollars worth of deals. This technology can be synced with your existing website and customized with your own colors and logo.
Some syndicators raise money in advance to go find deals. As do funds. Others do the deals, and then seek to raise capital to cash out their own positions.
The first time you do this may take longer to bring in all the required capital. Once you get into a good system and pace, and build a database, the time frame to raise for each new project should drop significantly.
Close the Deal
Once all the money is in place and due diligence is polished, it’s time for the closing. This can sometimes feel like more of a marathon than a sprint, but the results are well worth it.
New software and regulations have made it easier to raise capital online. There are several levels of crowdfunding for real estate, which come with different rules and options for fundraising for real estate deals. Know your choices, get good legal help, and get familiar with all the steps in your process so that you can roll out a successful offering.