How to Raise Capital for Multifamily: Equity, Debt and Partner Options
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To raise capital for a multifamily deal, you fill the capital stack from the bottom up. A senior loan from an agency, bank or bridge lender usually covers the largest share of the purchase price, commonly somewhere around 60% to 80% of value depending on the lender and the property. The rest, plus closing costs, renovation money and reserves, is equity. Sponsors raise that equity in four main ways: (1) a syndication, where friends, followers and other investors buy into the deal LLC under Rule 506(b) or 506(c); (2) co-sponsors who invest, sign the loan or bring their own investors; (3) a joint venture partner such as a family office that funds a large part of the equity for a bigger share of the profits; and (4) preferred equity or mezzanine debt that fills a gap between the loan and common equity, at a higher cost. Seller financing and assumable loans can shrink the equity you need.
This guide compares the options. For the investor side, see how to find investors for real estate.
Step 1: Size the equity
List every use of money: price, closing costs, loan costs, renovation budget, reserves and fees. Subtract the loan. What remains is the equity to raise. See sources and uses and the capital stack.
Step 2: Pick the loan
| Loan type | Typical use | Notes |
|---|---|---|
| Agency (Fannie Mae, Freddie Mac) | Stabilized properties | Longer fixed terms, non-recourse with carve-outs. See Fannie Mae small balance loans. |
| Bank | Smaller deals, local relationships | Often recourse, shorter terms |
| Bridge | Value-add, lease-up | Floating rate, rate cap, shorter term. See bridge vs agency. |
| HUD 223(f) | Long-term hold | Long amortization, slower to close. See HUD 223(f). |
Step 3: Choose how to raise the equity
| Source | How it works | What it costs you |
|---|---|---|
| Syndication of individual investors | Investors buy membership interests in the deal LLC under Rule 506(b) or 506(c) | You need a list of people who trust you; securities rules apply |
| Co-sponsors | Partners invest, sign the loan as key principal, or bring investors | They share the sponsor's fees and profits. See co-sponsors and key principals. |
| Joint venture partner | A family office or fund puts in most of the equity | Larger share of profits and more control for the partner. See joint venture vs syndication. |
| Preferred equity or mezzanine debt | Fills part of the gap, paid before common equity | Higher cost, more risk to common investors. See preferred equity vs mezzanine debt. |
| Seller financing or loan assumption | Reduces new debt or equity needed | Depends on the seller and the existing lender. See seller financing and assuming a seller's loan. |
Step 4: Run the raise
For a syndication, pick 506(b) or 506(c), prepare the offering documents, publish a deal summary, hold an investor webinar, collect soft commitments, then signatures and wires into escrow. Most first raises start with friends and family and people who already follow your work. See how to syndicate a real estate deal and the pitch deck.
Step 5: Plan for a shortfall
Set a minimum raise, keep a backup source (a co-sponsor, a partner or your own funds) and know your contract's deadlines. See minimum raise and partial closing.
A worked example (made up)
The numbers below are invented to show the math.
- Price $4,000,000, closing and loan costs $160,000, renovations $300,000, reserves $140,000: total uses $4,600,000.
- Loan at 70% of price: $2,800,000.
- Equity needed: $1,800,000.
- Raised from 30 investors averaging $55,000 = $1,650,000, plus $150,000 from the sponsor team = $1,800,000.
How DoorRaise fits in
DoorRaise is built for step 4 on apartment buildings with 5+ units: sponsors raise the equity from their friends and followers under Rule 506(b) or 506(c) with a deal page, a webinar Q&A, the standard offering documents, LLC formation, Form D and state notices, and accredited investor verification for 506(c) deals. Escrow is at Enterprise Bank & Trust, an FDIC-insured bank, and investors fund by wire only. See pricing. DoorRaise is not a law firm, broker-dealer, investment adviser, funding portal or bank.
Raise your apartment deal from the people who already follow you.
DoorRaise is built for apartment buildings with 5 or more units: one link for the deal, escrow until closing and a standard fee card.
Ready to raise? Create your free sponsor page or see pricing.
FAQ
How much equity does a multifamily deal need?
Usually the price minus the loan, plus closing costs, renovations and reserves. For many deals that is roughly a quarter to two fifths of the total cost, depending on the loan.
Is there a limit on how much I can raise?
Rule 506 has no cap on the amount raised. Under 506(b) you may accept up to 35 non-accredited but sophisticated investors; under 506(c) every investor must be accredited. See how many investors a syndication can have.
Can I pay someone to raise capital for me?
Paying a commission based on money raised can require broker-dealer registration. See paying capital raisers.
What is the minimum investment I should set?
Most sponsors set a minimum that keeps the number of investors manageable. See minimum investment amounts.
Next step: see the full process in how to syndicate a real estate deal.
Sources
This article is general information, not legal, lending or investment advice. The example uses made-up numbers. Talk to your own attorney, lender and CPA about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.