Do you want a cash flowing portfolio that lets you live a life of freedom. But what if you lack capital, time, and no idea where to start? Today, my guest is Mike Zlotnik, who has experience raising private money, raising OPM. He started out in software development. Since 2000, he has been a real estate investor, and since 2009, a full-time fund manager.
Most people don’t even know what the process is to start a fund. It takes a lot of work to get one set up, and Mike is already on his fourth! In this episode, we discuss how to set up and get capital into a fund.
Topics on Today’s Episode:
- Set up a financial vehicle, and develop an offering memorandum, term sheet, and summary sheet of marketing materials – with these, you can start raising capital.
- How do you raise capital? Start with friends and family. That’s the #1 step. They will put in whatever they can.
- Ask them to refer you to others who may have capital to invest. Establish a network and build relationships.
- If they invest in your project, they can get a better return than in the stock market with higher predictability and lower volatility.
- Masterminds are a great place to meet people, especially investors.
- You’re never raising money for the sake of money. You are trying to have people know, like, and trust you.
- Another option for raising capital is to have a partner. Also, you can borrow your partner’s credibility.
- If you and your partner are complementary, you can move mountains and the fund process is much easier.
- The multi-family space is suited for syndication. Mike’s job is to find high-quality syndication projects with the right sponsors and invest in them.
- Mike does a “Blind Pool,” which is not a specific property or deal, but invests in “X,Y,Z.” He vets what he is going to invest in and can find deals that others can’t.
- Don’t forget to communicate and let others know about what you do and your unique opportunity. You need to share your story.
- Mike is good at math and chess (he played competitively), but not so much at sales. So, he is happy to share his wisdom…about chess.
- Having a good, strong track record definitely helps to raise capital.
- Ask questions about funds, cash flow, rate of return, etc. Mike has a book that helps people learn how to invest in funds and syndications. It is titled, How to Choose a Smart Real Estate Investment Fund.
- When you first start out and have a deal, most cannot bring that deal home. They are unwilling to give up a piece to someone else, such as a partner. Share the wealth until you gain enough experience to be on your own.
- You need bank financing and a co-sponsor. If you’re raising equity, you need to be able to go to the bank for loan approval.
- Elements of a Deal: the market, bank financing, and operations.
- There are two elements to financing a deal: 1) bank loan and 2) equity rates.
- If you are trying to put a deal together, but don’t have all the pieces, that’s ok. Realize that you need to be strategic on how and who you bring into your deal.
- Mike’s crystal ball broke a while ago, so he does not know the future. But you can prepare for it. Interest rates are expected to rise. There might be a correction coming. That doesn’t mean the market is going to crash.
- In the multi-family space, as interest rates rise, that creates some buying opportunities and deals.
- If you buy affordable real estate, instead of the Taj Mahal, when there is a downturn, people go for affordable. You don’t necessarily buy for value, but for cash flow.
- If you want to write a book, don’t write it word for word. Outline your chapters, and record your thoughts. Have them transcribed, and you’ll have the words for your book!
Links and Resources Mentioned:
Quotes:
“That ability to aggregate capital is what makes things good for us.” Corey Peterson
“You have many investors who put their money into the fund, and the fund makes investments and pulls their money to various investments.” Mike Zlotnik
“If you have a good structure, if you have a good marketing business, you know how to find quality deals, then you can partner with people who can raise capital.” Mike Zlotnik
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