Why We Decided to Raise Money from Others

At the beginning of 2020, when we first started to transition from the flip business to the buy hold business, things were different. This was after we had already bought our first building with our cash in Kansas City. Our idea was to continue this by using the capital we had to fund a couple of flips that would subsequently, along with other means, support our multi-family buy and holds. We felt we could continue to repeat this to invest in two to three small multi-family deals with our own money each year. Then COVID happened; the idea of speculating with flips when there was so much uncertainty in the market didn’t seem prudent. We don’t have unlimited resources (cash), so we had to find another way.

Then our eyes were open to the ability to raise funds from others. There is so much education out there on best practices on how to do this. We went down the rabbit hole of reading and listening to books, podcasts, etc. We went as far as even hiring an advisor with much more experience to guide us around avoiding mistakes. That was with every aspect of this business, which has since paid us back by leaps and bounds.

6 Benefits to Raising Funds from Others

We realized if we wanted to grow this business, the only way would be to raise capital. 

Here are six benefits we see from raising funds from others:

1. The ability to do larger deals and have a greater economy of scale

2. Brokers take notice as you do more deals in a market

3. Ability to focus on large multi-family only in specific markets

4. Doing larger deals allows better financing terms

5. Doing these larger deals sets us apart from the smaller investors

6. Helping other people in their financial journey

The means to be able to do more deals in particular markets is enormous. As you start buying in specific markets, the brokers take notice. They see you as a serious player and begin to feed you deals before others. This leads to better deals. Not only do they want to get the best price for their client, but they want to work with someone they know will close. These larger deals allow for supporting staff and running the property at higher efficiency and lower cost per door (economy of scale).

Where you focus is also a big one. If you are focused on one asset type in a couple of markets, you eventually will drill down into good opportunities. Just like anything else, extreme focus, creativity, and hard work will bring results. Anytime one thing is consistently on your mind, you are bound to come up with new innovative ways to do things better. Additionally, with that focus comes knowledge. You have a more intimate experience of the asset class in that market by neighborhood. If you have a better idea of how those assets perform when it comes to rents and expenses in each target market you in turn bring more confidence in the execution of new deals.

We are at a price point of $3 to $10 million, making us more significant than the large pool of smaller investors but smaller than any institutional type player. So, we are in this comfortable in-between stage where we think we can carve out a nice niche for ourselves.

Investing is a Team Sport

Ultimately this business is a team sport. Along with our investors, we help each other grow in a symbiotic way in which we each do better together. In the short term, we make less by the ownership we give up. It gets better in the long term, and just like the deals, we are in this for the long game. It’s just more fun to share this with others. The successes will be that much more enjoyable as the fruits of our labor reward more people.

Lastly, all these benefits far outweigh any downsides from raising capital from others. It allows focusing on multi-space, which we are genuinely passionate about. We no longer wanted to be in the flip business. This path has allowed us to remove ourselves entirely from that business and concentrate. We believe that the fixation level will make us better investors and enable us to better service our capital providers.