How do I raise money for my first real estate deal?
Build relationships and a team before you need the money, open an offering only once a real deal is under contract, and size that deal to what you and your partners can confidently raise.
Key points
- A first raise usually takes longer than people expect, often many months from the decision to start to a closing.
- Relationships come first: the people you might offer a deal to should know you well before any offering begins.
- Choose your exemption, 506(b) or 506(c), with a securities attorney early, because it decides who you may talk to and how.
- Keep the first deal small enough that you and your partners can fund it with confidence.
- No money changes hands until the offering documents are final and in the investor's hands.
Alejandro Davila, founder of Mownt, Updated
Why the first raise is the hardest
Your first raise has none of the things that make later ones easier: no record of deals you have run, no habit of investor updates and no list of people who have already invested with you. Most sponsors say the second raise felt much easier than the first.
Plan for time. Going from the decision to raise to a first closing commonly takes many months, and sometimes a couple of years. Much of that time goes into learning and meeting people, not into asking for money.
Decide the shape of the raise before the deal
Before you look for investors, write down what you will buy: one property type, one strategy, a small number of markets and a size range. A narrow lane is easier to explain, and people find it easier to trust.
Then decide how you will raise. Under 506(b) you may not advertise the offering. Under 506(c) you can promote it publicly, but every investor must be accredited and you must take reasonable steps to verify that before accepting money. Your securities attorney helps you weigh the two, and the choice is yours as the issuer.
Put the people around you in place before a deal appears: a securities attorney, a real estate attorney, a CPA, a lender or mortgage broker, a property manager and an insurance broker. Lenders and brokers often size up a newcomer by that team.
Pick your lane
Write down the property type, markets and size you will pursue.
Build the team
Line up an attorney, a CPA, a lender and a property manager.
Start relationships
Talk with people one to one and keep a dated note of each conversation.
Find the deal
Underwrite steadily and make offers that fit what you can raise.
Open the offering
Once a deal is under contract, your attorney prepares the documents.
Close and report
Accept investors, close, and send every update you said you would.
Each stage leans on the one before it, so the early ones start long before there is a deal.
Relationships before the deal
Many first-time sponsors put a property under contract and only then go looking for money. The contract clock then runs while investors are still deciding whether they trust you, and a rushed raise can cost you the deposit.
A common way issuers show they did not use general solicitation is to offer only to people they, or someone acting for them, already have a substantive relationship with, meaning one that began before the offering and in which they learned about the person's finances and sophistication. Under 506(b), a person you first meet after a deal is under contract is usually someone to get to know for the next deal, not this one.
So start the conversations now. Ask people about their goals, their experience with private investments and whether something illiquid suits them, and write down what you learned and when. A short, honest monthly note with no offer in it keeps you in touch without asking for anything.
Size the first deal to your capacity
Most advice for a first deal leans small. A modest first syndication lets you learn the whole process at stakes you can survive, and it gives you a record you can describe honestly the next time.
Estimate what you could raise from people you would be allowed to offer the deal to, and be conservative: first-time raisers often expect far more than arrives. If the deal you want is bigger than that, a co-sponsor with real experience and a real job on the deal is a common way to close the gap.
Before you sign a purchase contract, ask your attorney and your lender how long each step takes, and leave room for documents, investor questions and wires.
From interest to a closing
Once a deal is under contract, your attorney prepares the offering documents. Before they exist you can note that someone is interested, but nothing they say is a commitment and no money changes hands.
Investor money is paid to the issuer's own account, or to escrow where the documents require it, and only once the investor has the documents. Your attorney also handles the filings the offering needs.
After the closing, keep every reporting promise you made. The people in your first deal are often the first ones you will talk to about your second.
How Mownt helps with this
- Mownt records your investor list when you import it. You decide how its columns map to your fields.
- Mownt records each soft commitment and shows the indicated total on each deal. You decide which investors to accept.
- Mownt records each investor you accept. You decide when to send subscription docs, from the same screen.
Written by Alejandro Davila, founder of Mownt. Mownt sells the software described here.
The full checklist is inside Mownt. Read "How long a raise takes" in the Capital Raiser Playbook when you join. Apply for early access
Frequently asked questions
Do I need a deal before I start talking to investors?
No. Most experienced raisers build relationships long before a deal exists. What you do not do is take money or a binding commitment before the offering documents are final.
How much should I try to raise the first time?
An amount you and your partners can raise with confidence from people you already know well. Many first raises are small on purpose.
Should my first raise be a fund?
Most sponsors start with a single property, because investors like to see the specific building before they hand a new manager a pool to invest. Talk it through with your attorney.
When should I bring in a securities attorney?
Early. Talk to one while you are choosing your exemption, and have them start on documents soon after a purchase contract is signed.
Can I start with friends and family?
Many sponsors do. Hold them to the same process and the same terms as everyone else, and include them only if they can bear a loss.
Keep reading
Getting past friends and family
What do I do after friends and family?
Keep going through three routes: deepen your wider network under 506(b), promote openly under 506(c), or meet people in person, knowing that each route carries its own rules.
Updated
Getting past friends and family
Can I raise capital with no track record?
Yes, but the credibility has to come from somewhere honest: an experienced partner, a real role on a team, visible preparation and small first steps, never from blurring what you have done.
Updated