So I’m pretty excited about this topic, because it’s something that a lot of our family offices are interested and actively participating in.
And similarly, we think we can help some of the younger guys out there to really understand what it is that you need to set up a one of these deals.
This article was written in partnership with our friend Natu Myers from Raises.com
How do you originate opportunities?
I guess there are a few perspectives here, because I can split into two pieces.
Raises.com right now, we’re not the principal person who is putting the money into the transaction, but we’re packaging them up and then getting them ready.
But when it comes to people that are originating, I can speak from the perspective of people who are on the buy side and and how they may originate.
Because what we see just at a high level is there are some people that are act as consultants, Raises.com acts as consultants, and then getting them ready, and then in a compliant way, making introductions and giving them the relationships to people who can invest in the deal.
So the point is, most people want cash flow. Most people want to invest into something that’s going to give them returns on day one.
And most people want control, predictability and certainty.
So as a big generality, you’ll see many people are more interested in cash flowing deals, multifamily deals, already cash flowing, transactions that are already cash flowing.
And at best case scenario, large investors then just want to make a control transaction into one off transactions.
Those seem to be as a broad generality, the biggest and most simple transactions, and most lucrative transactions that get done. Because everyone wants control, everyone wants cash flow.
And People don’t want to risk and don’t like risk.
So that’s as a big generality, that’s what we see.
How are you and members of your community finding these cash flowing opportunities?
One reason why, for example, we say $10 million plus is because whenever you make a rule about the types of transactions that you want to work with to fund or find somebody who would fund as somebody originating, people always break your rules.
And so the more ardent you make your rules, and the more strict you make your guidelines, you’re just going to get better people.
So if you say you want to find a deal, that’s raising $10 million, you’re going to find people that have raised $2 million come to you. If you say you want to originate something for $2 million, you’ll see people who want to raise like 200k.
It’s just the way it works, it’s almost like a foot in the door technique.
Where they say, Oh, we have a pipeline of this, but we have this quick transaction that we want to get done.
So one thing is really to come up with rules that are on the extreme.
And then as a default, people don’t follow the rules. So you’re just going to get the crumbs that fall in.
And so I think that’s the first approach.
And second, I would look at the jurisdiction, because there are a lot of people in a lot jurisdictions that you just can’t fund the deal or some people are experts in this certain jurisdiction.
And you know, for example, you know, political, political and unstable instability.
Even when referring to more stable countries like America and UK.
If somebody is looking for a deal that can get funded, and they work in stable countries, they’re still going to get a lot of people in a lot of unstable countries are going to approach them.
So just making those really ardent rules to prevent them from coming in. You know, in a way that’s respectable, obviously, but you know, that’s that just saves you a lot of time.
What about refining the class of properties that you’re seeking?
Yeah, so for Class A and Class B and everything, you know, those requirements, what’s funny enough, we like, just in our side, I mean, as authors,
we don’t really see a big we don’t really see a big, you know, need for us to, you know, say, Okay, you can’t do affordable housing, or you must do his class A, or you must do this. And you must do that.
What do we find that’s more important is the is the things like whether they’re doing a fund, or whether they’re raising the larger amounts or smaller amounts.
Because those things seems to have a bigger determinant of if we can actually help them or not, rather than if we’re doing Class A or class B.
Because if somebody is doing a class A, and they’re doing like a $40 million transaction, it’s not a fund. It is cash flowing like crazy, then great,
But if somebody is doing a development that is Class A, and it’s a fund, and it’s like $100 million fund, and there’s no track record, then that one is harder.
So I think there are other things that are greater determinants of if it could get done, rather than it being like, for example, affordable housing or like a luxurious type of setup.
How do you package a deal?
So when you’re ready to start approaching your funders and raise for your fund how do you package your deals? Let’s talk about what’s included in the packaging and what needs to be present?
We like calling it the data room.
And the data room is not a new term by any means.
But we like to say it okay.
And this is just at a high level
I guess there are three parts.
From a legal perspective, what exemptions are being offered?
If it’s an equity offering or if it’s a securities offering, because by law, there must be some sort of, you know, like, how is the investor going to sign the thing? What exemptions are being offered? Through what exemption through what regulation is in what country?
The quickest way to determine that is through the subscription agreements, and the private placement memorandum.
If there’s one. There are cases where there may not be one, but most of the time there is one.
So that’s one piece.
The second piece are the financials.
So it’s just two parts.
One is the accounting due diligence, you know, just looking at the accounts receivable, if it makes sense.
and then there’s the financial models, if there are any.
but then if it’s a development deal there’s no money, because there’s no revenues being generated yet.
Yes. So it’s like, but if it’s if there’s a cash flowing deal, then yeah, you can do it
And you can do a discounted cash flow model.
The third part is, I say, it’s everything else.
That includes everything that substantiates.
Everything that proves that every single piece of money that comes in, and every single thing that is said is true, and then determine how it’s true.
It’s like, okay, well, we’re getting money from here, here and here,
Say, Okay, well prove it.
Well, here are these contracts from you know, these people are, for example,
Hey, we have no permitting risks, no licencing risk for our development deal.
It’s like, okay, well prove it, say okay, well, here are these contracts here are these, you know, pieces of paper that we scanned, and here are incorporation docs, that proves that the entity exists, with the share structure and everything.
So really, all this is proving that all the things they said in the financials and in the securities are true.
And that’s the package.
And obviously, putting up in a nice, pretty, you know, cute little piece of paper a deck. And that’s how we get a package in there.
How would you generally take it to market?
Yeah, it’s just to eliminate a lot of risk and wasted time because a lot of people what they’ll do, they’ll go and pay a lawyer 40,000 to 60,000 for the PPM (Private Placement Memorandum) and then think they know what investors want.
And then they go to investors and then they say no, and then it’s like, okay, well, I already have some cost.
And so they’ll try to force a deal that the market doesn’t want down the markets throats.
I think what will make more sense is to just quickly test what types of transactions people are looking for, to begin with before they pay a lot of money getting everything ready.
Do it in a way that there’s a way to do it as a legal way and a compliant way that allows you to really know what people want and then once you get like a bunch of yeses,
Because you never want to depend on only one yes or one anything, then it’s like okay, let’s build the legal and then hit the market.
That’s the basic overview of what it takes to find, package and take to market a real estate deal. If you’re interesting in acquiring properties yourself or have a property that you’d like to find investors for then get in touch with us.