CAPITAL RAISING FUNDAMENTALS
🤝 Business Acquisitions vs. Real Estate Syndications
Buying a business and syndicating real estate share core similarities:
- Identifying & evaluating opportunities 🧐
- Negotiating terms ✍️
- Performing due diligence 🔍
- Raising capital 💰
Both often involve a team (lawyers, accountants) and aim to acquire an asset that generates income or appreciates. This guide covers both, starting with the business acquisition process.
📈 The 7-Step Acquisition Process
Here's a summary of the typical steps to acquire a company:
- 🎯 Step 1: Develop Acquisition Criteria
Define exactly what kind of company you're looking for (industry, size, location, financials). Position your brand to attract these specific sellers.
⚡ Focus your search to save time and attract the right deals. - 🤝 Step 2: Connect with Sellers
Find potential sellers through networking, online platforms (like Raises.com), brokers, investment banks, or direct outreach (e.g., LinkedIn).
⚡ Build your network consistently; deals come from relationships. - 🗣️ Step 3: Build Rapport & Sign NDA
Have initial calls to build trust. Sign a Non-Disclosure Agreement (NDA) to facilitate open discussion and protect confidential information.
⚡ Trust is crucial. An NDA is standard practice. - 📊 Step 4: Request Due Diligence Info
Once the NDA is signed, formally request detailed information (financials, operations, legal structure, risks) using a structured questionnaire.
⚡ Be thorough and organized in your information requests. - 🔍 Step 5: Perform Due Diligence
Critically review all provided information. Verify financials (understand context - tax vs. M&A), check legal history (look for fraud/lawsuits on Pacer.gov/Unicourt.com), and understand operations. Hire experts (analysts, accountants) if needed.
⚡ This is critical! Verify everything. Understand incentives behind the numbers. Determine min/max valuation. - 📝 Step 6: Submit Letter of Intent (LOI)
Make a formal, written offer outlining the key terms. Aim for an exclusivity clause to prevent the seller from negotiating with others while you finalize.
⚡ A serious offer shows commitment. Exclusivity protects your time/effort. - 💰 Step 7: Raise Capital & Close
Secure the necessary funding (debt, equity) to complete the purchase. This often happens concurrently with final negotiations and due diligence.
⚡ Start building investor relationships *before* you need the money! Raising capital often takes longer than expected.
🏠 Real Estate Syndication Fundamentals
The acquisition process is similar for real estate, but the focus shifts to property types, classes, and investment strategies.
Understanding Property Classes (Risk/Reward)
Class A
💎 Newest, best locations, high-income tenants, low vacancy, high rent. Lower risk, stable returns.
Class B
🔧 Older, good locations, potential for value-add renovations. Moderate risk/return.
Class C
🔨 Oldest (>20 yrs), less desirable areas, needs significant work. Highest risk, potentially highest returns if managed well.
Core
🏦 Low risk, stable cash flow, prime locations, low debt (<50%). Lower returns (7-10%).
Core Plus
📈 Similar to Core but maybe slightly older/less prime, potential for minor improvements. Moderate debt (50-60%), returns (8-12%).
Value-Add
🛠️ Buying properties needing renovation/repositioning. Higher debt (60-75%), higher potential returns (10-15%), requires expertise.
Opportunistic
🚀 Highest risk/reward, ground-up development or major repositioning. Complex, requires significant expertise, long timeline, highest potential returns (>20%).
Exploring Real Estate Sectors
🏡 Single-Family
Standalone houses.
🏘️ Multifamily
Apartments, duplexes, student housing, senior living.
🏢 Office
Single tenant to high-rises (Classes A, B, C).
🏭 Industrial
Warehouses, distribution centers, manufacturing.
🛍️ Retail
Stores, malls, shopping centers.
🏨 Hospitality
Hotels, motels, resorts.
🌳 Land
Undeveloped, infill, brownfield. Risky but potential for development.
🔄 Mixed-Use/Special
Combines types (e.g., retail + apartments) or specific purpose (e.g., schools, theaters).
Common Investment Strategies
Buy & Hold (Short/Long)
📈 Purchase and hold for rental income and appreciation (1-5 yrs or longer).
Fix & Flip
🔨 Buy, renovate quickly, sell for profit. Requires speed and expertise.
Wholesaling
🔗 Find deals, get under contract, assign contract to another buyer for a fee. Requires marketing/negotiation skills.
BRRRR
🔄 Buy, Rehab, Rent, Refinance, Repeat. Strategy to build a portfolio using refinancing to pull capital out.
