Episode 11: Raising Money – One Big Check or A Lot of Small Checks

Let’s talk about partners–those who invest in real estate deals. A sponsor, like me, deals mostly with investors, and if you listen to Episode 3, you’ll understand the relationship between General Partners (GP), or a syndicator, and Limited Partners, or investors. When you ask the question of how to invest in real estate with no money, as a syndicator you have two routes you can head towards. One is to have a couple of high-network individuals that write rather large checks for you to grow, or two, raise smaller checks and smaller amounts of money from larger pools of investors, both of which are effective real estate investment strategies.

There are pros and cons to each road. You’ll hear a lot of allocators talk about how one LP writing a $10 million check is more valuable than a bunch of LPs writing $50,000 checks. Yes, you’ll have less paper work, fewer updates, and you have just one person to report to making the technical side a little simpler. I’m going to push back against that. The way I’ve approached my deals is that I don’t put all my eggs in one basket. Now, what do I mean by that? Because I don’t have one single investor who can tell me what to do, I’m not relying on their single check, and can maintain more control of the flow of capital. Don’t get me wrong, just because I work with multiple investors, this does not mean I don’t get to know them.  I still maintain a healthy professional relationship with each and every one, but not a single LP of mine tells me how to run the business. If an LP changes their mind, they have a situation that arises that prevents them from not investing in any more deals, I have the option and the leverage. I have the ability to negotiate better terms. I have the ability to say, “I know I can find this deal, I have enough other people to help fund it, and in fact, you need this deal more than I need your capital.” If you are able to understand the dynamics out of mutual respect, making your LPs a lot of money but having the ability to set up the terms, you in fact get more equity. 

If you talk to a lot in family offices, super high-net individuals that write those big checks, those people are used to thinking that their money is the only money in the world. They’re used to a sponsor selling to them and pitching reasons to invest. I don’t have to do that. I have hundreds of LPs to go and pull from with my work on Twitter, this podcast, and a variety of other ways. I can choose the deals, let people know about it and the individual risks involved, and if it aligns with what they want, they’ll commit! If not, they don’t. There’s none of this negotiation process of them trying to have the upper hand on me, because I know this deal will work for someone and I’ll get the capital from those people. This is a major advantage in real estate investing.

The second big advantage of having a variety of LPs is this. It would be a nightmare to keep track of numerous LPs with spreadsheets and email, individually tracking each and every investor, personally mailing them checks and having meetings with each one, and for a lot of syndicators running their business like this, it is. Personally tracking and sending and recording distribution is a lot of work. Not with Juniper Square. They’re a sponsor of this show, and for a good reason! They give the simplicity of managing one LP to those working with multiple LPs. They’ve simplified the process of mass management into the click of a single button. From the distribution and checks to the reports and tax returns, it really is that easy. Even raising money, they make it easy there too, and the advancements of technology are making this way of doing business more accessible 

To reiterate, if you raise from a number of small investors and have the network, you can create the terms and not a single LP can dictate how you run the business. This is why this is one of the best podcasts for real estate investors, because I’m doing something that a lot of them aren’t, and it’s working. As a real estate GP you can either try to negotiate the best terms and work on an 80-20 split, or you can raise money from a variety of individuals and accredited investors. If you get big enough, not one single person that you work with will act like their money is the only option out there, because you know it’s not.

Three Key Takeaways:

  1. There are two different approaches to raising capital as a General Partner: one big investor, or a bunch of smaller investors, each having their pros and cons. 
  2. When you don’t have a single investor dictating how you structure the deal, you maintain more control over the way you do business. Because you haven’t put all your eggs in one basket, you know that it’s a matter of just finding the right LPs.
  3. Technology has made it so much easier to manage multiple LPs, and Juniper Square is a fantastic tool. There is a clear advantage to having a variety of different capital raising opportunities, and the disadvantage of managing multiple accounts is virtually gone thanks to software and technology like Juniper Square.

The Nick Huber Show is Brought to You By:

Juniper Square

  • An incredibly easy way to manage and automate your real estate investment deals with your investors.
  • Stay organized and look and stay professional with Juniper Square
  • Go to www.junipersquare.com to learn more.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.