Here’s a fact that probably won’t surprise you. Many of the active syndicators that I know started out in the real estate game as passive investors. Which makes sense. Passive investing is a great way to gain exposure to the real estate investment market, learn the industry, and get a sense for how the deals are really done.
At some point, these passive investors decided that they wanted to get their hands dirty and become active investors. They wanted to be the one to syndicate the deal: to raise the money, put the team together, and ultimately manage the whole process. But how?
Check out the video, or read on below.
Getting the Bug
Some passive investors will get the bug for real estate investing. They start out investing in one deal, and then another, and after three or four deals they realize that they really love it. They love the cash flow, the tax benefits, and they find themselves blabbing about all the benefits to their friends. And maybe they get their friends to invest.
Suddenly, they find themselves as active capital raisers. They begin to focus on raising capital from others in their network and, eventually, from people outside of their network. They may even establish a joint venture with syndicators who have the deals and are seeking help in raising capital. (A perfect match for someone that can raise money but is challenged in accessing deals!)
Having a passion for real estate investment and being able to share that passion with others, to the point that they invest with you, is an ideal scenario for getting started as an active investor. But, let’s be honest. Not everyone will have such luck, or the connections with the financial ability to invest.
Here’s the good news: Capital is not the only thing that you need to be successful in the syndication game. Let’s take a look at how learning the tricks of the trade through passive investing can help you pave your way to becoming a deal syndicator.
Transitioning from a Passive to Active Investor
First of all, if you’re going to invest passively, you’re naturally going to learn a lot about multifamily as an asset class. You’ll learn what makes up each asset class, what the good markets are, what the risks are, and what the rewards can look like. Passive investing can teach you how to evaluate opportunities.
Sure, in this passive state you don’t have to be as detailed with your analysis as someone who’s actually doing the deal. BUT, you have to be able to analyze deals and markets. Even as a passive investor, you must be able to ask intelligent questions and call BS on some of the financial projections that you are presented.
This is where it pays to work with an active investor that has a solid track record and a proven process. One that can teach you about the life cycle of a deal through the closing process, including that all important step of the capital raise.
Related: How to Vet a Multifamily Syndicator
Once you’ve invested passively yourself, you become familiar with the process and you clearly understand the risk versus reward. It’s easy for you to tell others about it, because you’ve been through it! Whether you have the “right” connections in your immediate network or not, this experience prepares you to be a great capital raiser.
The key word here being experience.
I’m a big believer in experiential learning. Robert Kiyosaki from Rich Dad Poor Dad has a talk about Edgar Dale’s “Cone of Learning”, which is represented in the inverted cone below. Basically, the cone shows how much a person can retain in two weeks based on how they take in the information.
Take a look at the bottom of the cone. Are you surprised to learn that people forget 90% of what they read in two weeks? Now look at the top of the cone. If you have a highly experiential experience, meaning if you actually do something, you’re likely to retain 90% of that knowledge.
Here’s the point. Regardless of what you want to do in life, immersing yourself through experience is proven to be the most effective way to learn. Whether that’s learning a new language, learning how to raise capital, or learning how to analyze a multifamily deal. You can read a book or take a course on the topic, and that’s great, but actually doing it makes a material difference.
First, we do it with videos, blog posts, downloads and podcasts. You can access a directory of our past blogs and videos that we’ve created specifically to help you make better investment decisions around these multifamily syndications. We’ll also host webinars and bring in subject matter experts to do a Q&A.
But we also try to engage investors with property tours, where you can join us in person and we’ll visit some properties together. This way you can actually see, touch, and feel the assets and ask us questions. You’ll find that we are very transparent about our deals.
We also host an annual conference called Dealmaker Live, which is typically held in the summer months around July.
We make all of these resources and various ways of taking in information available because we really want people to understand investing in multifamily. We want them to be comfortable enough to try to invest in it because the benefits are just amazing.
The cashflow. The consistent returns in tax benefits. It can be life-changing.
If you are interested in hearing about our upcoming deals at Nighthawk, you can go to www.nighthawkequity.com/join and we’ll set up a call with you, establish a relationship, and add you into our deal flow.