· Should a syndicator invest money in his or her own deal?
Absolutely. It is imperative that the syndicator put some “skin in the game.” Some proponents indicate 10 percent is the right amount of the total capital; others go as high as 20 percent. I don’t believe that the amount is nearly as important as the demonstration of your good faith and your belief in the deal. You have to put in enough that if something goes wrong, it will be painful to you just like it is to the investors.
· Do you have to pick out the exact property that you want to syndicate before you syndicate it?
Specifically, you don’t have to pick the exact property that you plan to acquire before you begin the syndication process. In fact, sometimes it’s very difficult to pick out the exact property, because by the time you pick out the property you don’t have enough time to begin the syndication and securities process. If you do have the right property chosen beforehand, then you can describe that property in great detail in your private placement memorandum materials. However, you can also create a blind tool that helps you to retain flexibility, as long as you can describe the nature of the types of investments that you are looking to acquire. It’s a lot more complicated to create a blind tool because you are not given particulars, but a good attorney can help you to make that happen and allow you to provide the specific information to make your deal come to life.
· What qualifications do investors have to meet in order to participate in my syndication?
The goal is to create relationships with accredited investors. These are people who have a minimum net worth of $1M, or they have made a minimum of approximately $200,000 in annual salary for the last two years with the expectation that they will make a similar amount this year. If there is a spouse involved, the numbers are just a little big higher. If you take people who are not accredited, then the disclosure requirements are much more onerous. Accredited investors are people who are deemed by the government to be people who can protect themselves because they have the money to call an attorney and ask for help. Non-accredited investors, who have less money, are not considered people who can protect themselves and therefore you have to meet a much higher standard as prescribed by the Securities and Exchange Commission.
· How do I begin to use other people’s money?
First, if you want to use other people’s money, you need to step up and own up to the dramatic responsibilities that using other people’s money demands. Using other people’s money creates a responsibility that very few people are aware of in advance. It also creates dramatic conflicts of interest because there will be many times that the promoter’s self-interest is at odds with the investors’ capital contributions. The syndicator must, at all times, balance his or her own greed and need against what’s in the best interest of the investors. Remember that if the goal is to build a pool of fans and to have a long-run success in the syndication business, then the syndicator must make decisions that are in the long-run best interest of the individual investors. Sometimes that means post poning or deferring confrontation that would otherwise be due. Raising money is clearly the hard part, not only because it’s difficult to get investors to say yes, but also because it’s difficult to manage the conflicts that are inherent in this relationship. If you want to succeed at this, there are several specific approaches that we teach all of the people that we show how to raise money.
· How do you find and get your deal in front of accredited investors, especially for your first deal?
The most important component for any investor is confidence in the syndicator that they are placing their capital with. Part of the reason that it’s important to have background in either real estate or capital, is because with that background comes experience, and you can leverage that experience into a confidence-building discussion with your prospective investors. There are billions of individuals who have capital and are looking to place that capital into deals if the deal is a good one. First, they have to have confidence in you, second, they have to have confidence in the deal, and that’s the reason that your real estate expertise is so critical in this formula. There’s no shortage of capital from individual accredited investors, as well as from the hedge funds on Wall Street that pool billions and billions of dollars and are ready to make investments in deals.
Joel began his career as a CPA with the prestigious firm of Price Waterhouse. During his time with the company’s Entrepreneurial Services Group, Joel immersed himself in the real estate syndication business. After reviewing hundreds of partnership agreements and preparing as many tax returns, he left Price Waterhouse in 1986 to start his own syndication firm, raising several million dollars in three short years. By 1990, Joel had built a property management firm of more than 40 employees with a portfolio exceeding $100 million. Joel continues to syndicate real estate and other assets, as well as counseling other promoters on successful syndication strategies. He is also involved in film financing and invests in early stage companies and other deals. For more information about Joel Block and his upcoming seminar, visit his site at http://syndicatefast.com/