Can You Raise Money for Real Estate With a Small Following?
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Yes, you can raise money for a real estate deal with a small following. No rule sets a minimum number of followers, and the number of followers is a poor guide to what you can raise. What matters is how many people know and trust you, can write your minimum check and are eligible under your exemption. A small, close group of people who have followed your work can fund a deal that a large, distant following cannot.
For a funnel walkthrough for large followings, see how much a sponsor can raise from followers. This post is for sponsors who are earlier on.
What is the math that matters?
Work backward from the deal. The numbers below are hypothetical, to show the method.
- Equity needed. Say the deal needs $1,000,000 of investor equity.
- Typical check. Say your minimum is $50,000 and the average check is $50,000.
- Investors needed. $1,000,000 divided by $50,000 is 20 investors.
- Who can be one. Of the people who know you, only some are accredited, some have the cash and some will say yes.
The question is whether you have people to fill each step, not whether you have a given number of followers. Twenty investors can come from a few hundred close contacts, or from many thousands of distant ones, depending on how well they know you. Your own conversion rates are what you learn from the first raise. Do not borrow someone else's.
Which small groups work best?
- People you have worked with: colleagues, partners, tenants-turned-friends, past clients.
- People you have taught for a long time: subscribers who have emailed you back for years.
- People you have met in person: meetup contacts, deal partners, speakers at the same events.
- Family and friends, with care. See raising from friends and family.
For Rule 506(b), these are the kinds of relationships that can be substantive (SEC, Rule 506(b)). See what counts as a substantive relationship.
How can you grow trust without a large following?
- Show your work. Underwrite real deals in public, with assumptions and the ones you passed on.
- Use email, not only social. A list you can write to is yours. See building a waitlist.
- Host small calls. A live Q&A for ten people teaches you more than a post for a thousand. See running an investor webinar.
- Invest your own money. Investors want the sponsor to have skin in the game. See first-time syndicator with no track record.
- Partner. An experienced co-sponsor or a sponsor with a bigger network brings credibility and reach.
What should you not do?
- Do not buy followers or lists. Fake reach does not make investors, and a bought list is not a relationship.
- Do not widen the pitch to strangers under Rule 506(b) to hit a number. That is general solicitation; see what general solicitation is.
- Do not promise returns to close a gap.
- Do not lower the quality of the deal to fit a smaller raise.
How does a smaller deal change the plan?
A smaller deal needs fewer investors, but the legal work, the documents and the escrow still apply, and a small property can have thin margins. Compare the cost of setup and ongoing work with the equity raised before you commit. Small is fine. A deal that cannot carry its costs is not.
Our take
The follower count that matters is the one that would take your call. Build that list first. If you are short of the equity, shrink the deal, add a partner or wait. A smaller, fully funded deal with investors who trust you is a better first step than a large one that stalls.
Trade-offs and who this is not for
- Slower. Trust takes time.
- Concentration. A few large checks make the raise depend on fewer people.
- Not for sponsors who want to skip relationships. There is no shortcut around knowing your investors.
- Not a substitute for counsel.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
You can set up a free sponsor page to collect interest and publish a deal page when your deal is ready. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
How many followers do I need to raise money for real estate?
There is no minimum. What matters is how many people know you, can write your minimum check and are eligible.
Can I raise from a small email list?
Yes. A small list of people who know and trust you is often better than a large public following for a Rule 506(b) raise.
Should I buy a list of investors?
No. A bought list is not a relationship and can create general solicitation problems.
Can I raise with no following at all?
Possibly, through partners or people you know, but it is harder. Build trust and a track record first.
Sources
This article is general information, not legal, tax or investment advice. The figures are hypothetical and show a method, not a result. Talk to a securities attorney before you market an offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.