So, you got a foot in the door of real estate syndication and are eager to land a syndication deal? You’ve done your homework, studied the industry and your chosen market, learned to analyze deals and perform due diligence, and are now ready to raise capital and pitch a deal to potential investors. But are you, really?
It would be helpful if there were a checklist that you could follow to step up your investor relations plan and hasten capital raising when you need it, right? Well, I looked back into one of my conversations with Gene Trowbridge and was reminded of his 4-step approach of ‘selling the sizzle’ to elevate your game in attracting investors and capital-raising. A frequent guest in our podcast, Gene -who is an experienced and accomplished syndication attorney and founding partner of Trowbridge Law Group LLP -had this to say: “If all you’re gonna do is pitch your deal and go right for the close, there’s another deal out there that’s better than yours. So, you need to build up the sizzle to pitch your deal.”
So, I’d like to take you back to what Gene shared and help you to gain a new perspective on pitching deals and forming relationships with investors. You may listen to the full podcast episode here.
Don’t Start With a Pitch
“When raising money, most of us just go right for the kill, go right for the close. It’s a mistake in marketing, in my opinion, to just start with a specific deal. Talking to people about a 25% ROI and a 14% IRR, I found that was not a very good sales approach because the next thing that happens, they come back to you and say – Well, I saw a deal yesterday that was 30% and 16%. You can never win the sales argument if all you’re gonna do is sell an ROI or an IRR because the investor doesn’t know what it’s built on. You’ve got to build that up to get to that level,” says Gene, highlighting the need for a more studied and targeted-to-a-defined audience strategy in approaching investors.
Gene adds that with an approach that touches deeper on the other facets of syndication investing, it will be easier to establish pre-existing, substantive relationships with investors – which is an SEC requirement for capital raising.
So, how do you ramp up your approach to sell your brand and your product in a way that draws the right investors?
Follow the “Sell the Sizzle” Approach
Here’s a step-by-step guide to following Gene’s “sell the sizzle” approach.
First, create a database of potential investors
“Develop a database of people you can go to when it’s time to actually pitch your deal. Think of 50 investors where there’s a 50% chance of each of them giving you $50,000 when you asked them and maybe even a referral. If you ended up with 25 investors who really gave you $50,000, you would have $1.25 million, and that fits right in with my idea that your first raise should be $1.5 million,” advises Gene, adding that only people interested in real estate (or who seem like they’re interested) should be included in the list.
Once they’re in your database, the people in this list are the ones with whom you’ll start building a relationship. With education and encouragement, you can nurture them into becoming investors in your deals. You may now start applying the ‘sell the sizzle’ approach as you individually assess their readiness to join you in investing in real estate.
#1 Sell the sizzle of real estate
Stir interest in the real estate industry
Talk to each person on your list to determine their general interest in real estate. This will allow you to assess whether the individual is a potential investor or not and enable you to either trim down your list or make additions. “Your database can be in a software program so that you identify the people as hot or lukewarm. If they’re lukewarm, I suppose it’s not wrong to put them in your database and soft sell them, but they’re not where you’re going to get your money for your first deal,” advises Gene.
Here are some topics that Gene recommends you discuss when you sell the sizzle of real estate:
- The opportunity provided by investing in real estate
- How important it is to be diversified with real estate in their portfolio (especially if they’re invested in stocks only)
- Real estate is the IDEAL investment because it produces Income, Depreciation, Equity buildup, Appreciation, and Leverage.
- Come up with some anecdotes: people you know who have invested in real estate and achieved success
- Historically, famous names in real estate who created vast wealth and family legacy
- The real estate industry is one of the best routes to riches in America, producing a significant number of the top wealthiest in the country
- If they can do it, you can do it, too.
If after a proper effort of selling the sizzle of real estate, an individual remains disinterested, Gene advises moving to your next target. He adds, “Some people have had some experience or exposure in real estate, some people need to know more about it, while others will really never invest in real estate.”
#2 Sell the sizzle of your part of the real estate industry
Inspire interest in your real estate niche
The next thing you need to do is sell the sizzle of your part of the real estate industry to the people in your list who expressed interest in real estate. This presumes that you have already gained sufficient knowledge or, better yet, expertise in your chosen property type or class (for example, commercial RE investments such as self-storage facilities, multifamily apartments, mobile home parks, retail spaces, etc.). “That’s who they’re going to want to invest with, someone who’s an expert in what they’re doing. So, you have to find the area that you think you’re going to be a specialist or you are a specialist,” says Gene.
Suggested topics to talk about to inspire interest in your real estate niche:
- What are the problems or the needs of the people you observed?
- What’s the opportunity?
- Why did you pick this product/property type?
- How will this product type solve the problem?
- People in condominiums have smaller living spaces and need space to store their belongings so there’s an opportunity to build and operate self-storage facilities to satisfy that need and generate income for you
- The shortage of housing for low-income families or for students near universities creates an opportunity for mobile home parks or student housing facilities
- Multifamily advantage: Almost everyone has lived in some sort of an apartment – a duplex, a fourplex, a high-rise, a mid-rise – so many understand that and many picks this as their first investment choice.
Gene maintains that one important thing that you need to express to investors is that your product type provides a solution to people’s needs and that you have the expertise or experience to make the solution work and be beneficial to all parties. Offer investors the opportunity to be part of the solution from which they can gain financial rewards as well as a sense of being able to help others and give back.
#3 Sell the sizzle of you and your team
Make them choose you
Now that you’ve found people interested in your part of the real estate and product type, it’s time to sell the sizzle of you. Make them choose you over the others. Ask yourself this question: “Why should anyone give me their money to invest in my deal?”
You need to have a list of your credentials to answer that question. There are three aspects that need to be developed before launching this third approach.
- Your credentials or track record
Obviously, you will need to talk about yourself when you sell the sizzle of you. You have to talk about your education, skillset, relevant experience, and results of prior investments. Essentially, what needs to be highlighted is how ideally suited you are to manage investors’ money, put it to work in a product type that they’re comfortable with, and generate returns.
Remember, you may lack some credentials but when you team up with somebody with more experience, you can execute your plans and deliver on your promise all the same.
- Your Team
Gene says it’s crucial that you have a core group of people that work with you, who believe in your company and your product type, and are imbued with inspiration and determination to make your plans work.
“Introduce your team. Who have you gathered with you? A question an investor is going to ask is, ‘If I give you my $50,000 to put in your deal, what’s going to happen when something happens to you?’ Having a team answers that question,” adds Gene.
Sell the power and experience of your team, the people you’ve surrounded yourself with, and you’ve built a solid foundation for your deal.
- Your skin in the game
“Another question investors ask you is, “Are you going to invest some of your own money?” says Gene.
Most investors look for deal sponsors who are willing to “put their money where their mouth is” because that gives them assurance and confidence that the sponsor will be just as motivated as the investors to protect the investment and generate positive returns. Entrusting hard-earned money to a stranger can be worrisome and knowing that you, the sponsor, have put your own money into the project helps alleviate this concern.
#4 Sell the sizzle of your deal
Win them over with your deal
Now that you have laid the foundation and your potential investors have gained a depth of information, it’s time to pitch your deal. To sell the sizzle of your deal, Gene recommends having a marketing brief that summarizes the following: (1) three or four key benefits of your offering, (2) how the offering provides the solutions to the problem you identified (3) how your deal fits the first three sizzles you had talked about (4) how the deal matches what investors are looking for and how this deal will make the investor money (5) your team’s capability to manage the deal.
It is important that the economic benefit of your deal matches the investor’s financial goal in the type and manner that the investor wants to make money.
In summary, Gene explains, “What I built is like a pyramid from the bottom. Everyone interested in real estate goes up a little farther, dropping off those who are not. Those interested in my special area of real estate and the opportunities go up the next level while some will drop off. Now, the smaller group of people going up to the next level, the ones who know more about me already, are the ones who really want to invest their money with me, and to whom I will pitch my deal.”
Use the 4-step ‘sell the sizzle’ approach to get you started in building your network of investors and getting your deal up and running. Plan ahead and be prepared to sell your brand and your product to draw the right investors. With perseverance and determination, you will establish your footing in the industry and will build a lucrative real estate syndication business.
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