Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
There’s no secret and magic formula that, if applied, will allow you to easily attract millions of dollars in private capital. However, if you follow these three tactics, you can slowly start to separate yourself from the pack, build relationships with high net worth individuals and ultimately build a sustainable and successful apartment syndication business model.
The first way to differentiate yourself from other syndicators is making sure there is an alignment of interest. What are you doing to show your investors that their interests are just as important, if not more important, than yours?
There are many different ways to accomplish this, but one thing that my company does that many others don’t is putting our asset management fee in second position to the investor’s preferred return. In other words, if the project doesn’t meet the investor’s preferred return, which is typically 8% on an annual basis, then we don’t collect our asset management fee.
Now, that may seem like it’s common sense – if the project is performing for the investors and they aren’t receiving the projected returns, why should we get paid? However, this actually isn’t a common practice. And it’s certainly not a common practice to explicitly state this in an operating agreement. But that is what my company does. Our operating agreement says that if the project is not on track to achieve the investor’s preferred return, we do not collect the asset management fee.
Hopefully, it never comes down to this, but having this in the operating agreement reinforces the alignment of interest with our investors and differentiates us from other apartment syndicators.
Another way to differentiate yourself from the competition is by having a high level of transparency. Now, you obviously don’t want to bother your investors with every single aspect of the operations, but how often do you send out updates to your investors? I know some syndicators provide quarterly updates, while others offer annual updates. But for my business, we send out detailed email updates to our investors on a monthly basis, including occupancy rates, renovation updates, rental rate actuals vs. projections, capital improvement updates, issues with proposed solutions and any other updates relevant to the project. Then, we send out detailed financials on a quarterly basis so investors can have a granular level look at the operations.
Additionally, we are extremely responsive to investor questions and concerns. The last thing a passive investor wants is to ask a question and be ignored or receive a response a few days or weeks later. Therefore, if an investor sends you an email, quickly find the answer and reply to them in a timely manner. This may seem minor, but again, this can go a long way in differentiating yourself from other apartment syndicators who take forever to reply to investor concerns.
Finally, and certainly most importantly, the private investor must trust the person leading the charge, which – as an apartment syndicator – is you.
One of the main ways to build trust – I know this isn’t earth shattering advice – is to be yourself. There’s no reason to put on a show for your investors. Instead, you will build the best relationships if you just be your authentic self.
Besides authenticity, the best way for investors to trust you the fastest is through your online presence. And this is accomplished by creating a thought leadership platform, whether it’s a podcast, YouTube channel, blog, etc. Whenever I jump on a call with a prospective investor, most of them say, “I feel like I’ve already talked to you because of your podcast.” That’s music to my ears, because we’ve already established rapport before even having our first conversation.
Ultimately, differentiating yourself from other apartment syndicators boils down to building trust and credibility and determining how to do so in a scalable way.
What are some tactics you’ve discovered that enable you to differentiate yourself from other investors in your niche?
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Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.