How We Raised $3.45M for a 140-Unit Apartment Acquisition

Original automatic captions. Names, numbers, and punctuation may contain transcription errors.

0:02 Hello and welcome back to another
0:03 episode of the Owner Meeting podcast.
0:04 I'm Christian, your channel host, joined
0:06 today in person by the one and only
0:08 Caleb Hmel.
0:09 Thanks for having me.
0:10 Welcome back. Now, you guys have had
0:11 Caleb on this channel many times. Today,
0:12 we're going to talk about one of my
0:13 favorite topics of all time, the capital
0:16 raise. Caleb, you are on the very, very,
0:18 very back end with me of raising a
0:20 little over $3 million
0:23 right after we just raised $2 million
0:24 for our last deal. Y So, we are closing
0:26 out 140 for an acquisition. What's the
0:29 total raise amount for this deal? Uh
0:31 total raise amount is $3,450,000.
0:35 That is some capital. Now, this is the
0:37 most that I've ever raised, most you've
0:39 ever raised. And one of the things I
0:40 think a lot of people ask themselves,
0:43 how much money can I actually raise for
0:46 a good deal? This is by far the most
0:48 we've raised, almost twice what we've
0:50 ever raised before.
0:51 Yeah. When you're going into a deal and
0:53 you underwrite the deal, first question
0:55 I have for you, how do you know that the
0:58 money is going to appear for the deal?
1:00 If you've never done the amount of money
1:02 before, how do you know? I think having
1:04 a little bit of wherewithal and
1:05 awareness um is probably important. If
1:07 you are not a very connected individual
1:08 and you were deciding, hey, I have a
1:10 single family house. I'm going to go buy
1:12 150 units. You probably need to rethink
1:14 slightly unless you're bringing in a
1:16 capital partner or a capital raising
1:17 partner. But if you've done this thing
1:19 before, like this isn't going to double
1:20 my portfolio. This isn't going to double
1:22 Christian's portfolio.
1:23 We've done this thing before.
1:24 Cumulatively, we've probably raised more
1:26 than this in total in past deals, I
1:28 would say.
1:29 So, this isn't going to be the doubling
1:31 the amount of money we've raised. I
1:33 think we kind of had those pieces and
1:34 had those tangible kind of inputs. We
1:36 realized we probably could do it.
1:37 So, if the goal is to learn how to raise
1:40 private capital, how to do this well and
1:42 how to manage your manage these
1:44 projects, what's a good starting point
1:45 for someone? Let's say you are leaving
1:48 your W2. So you're like a let's say
1:50 you're a a low six figure earner.
1:51 Yeah.
1:52 Or you've done some single family
1:54 investments. Maybe you've done a small
1:55 multif family deal but haven't raised
1:57 yet. First ever capital raise. What's a
2:00 good size deal? What's a reasonable
2:02 amount that anyone could do for a good
2:04 deal?
2:04 I think anybody doing for a good deal
2:06 anywhere from 250 to 400. I think
2:08 anybody can raise that much money on
2:10 their first one. Like 100% agree.
2:12 Like 10 to 25 units that range. Even
2:13 maybe up to pushing a 25 or 30. um
2:16 depending on how good the deal is. I
2:17 think that's 100% doable. I've never
2:20 found any lack of people who want to
2:21 make money in real estate. So, of
2:23 course, the more connected you are, the
2:25 easier your rate should be. But where do
2:27 people go to find capital? If I'm doing
2:29 a first deal, you did your first deal at
2:32 Were you 18 or 19 when you closed the
2:33 first one?
2:34 What it was, was it late 21 or late 22?
2:37 I think I believe it was late 21. If it
2:39 was late 21, I was 18. I can't remember.
2:41 It was already It's been quite a few
2:43 transactions ago. I was 18 or 19 years
2:45 old. And the biggest thing kind of where
2:47 would you go? I've given this advice
2:49 remember what podcast I heard this on.
2:50 It might even been from you. Give this
2:52 advice to a few people and just always
2:53 talking about what you're doing. You
2:55 would be amazed how much how many people
2:58 that draws into your circle and how many
3:00 people that results in getting capital
3:01 from deals from new connections. That is
3:04 like the single most underrated thing
3:06 for beginners is just talk about what
3:08 you're doing at all times. You did one
3:11 of your earlier deals. This was deal
3:12 number five for you, which is crazy that
3:14 that's you're 22 and earlier deals was
3:17 like deal number five. You did a 26 unit
3:20 uh that had a capital raise. Where did
3:22 the capital come from for that
3:23 particular deal? That was um the capital
3:25 for that. That's a guy um very dear
3:28 friend from San Diego who I met when I
3:30 like saying this snuck into a Bigger
3:32 Pockets event cuz I didn't have the
3:33 money to go to have the money to go.
3:35 Walked in, met that guy there and years
3:38 later that turns into a deal and a
3:39 connection from a deal and he funded the
3:41 whole thing. See, that's that's the type
3:42 of stuff that I love. So, a random
3:44 event. You go to a random meetup. We've
3:46 seen $44 million of deals done through
3:48 the school community for multi family
3:49 strategies.
3:50 I mean, dude, real quick, we're talking
3:51 about random meetup.
3:51 You want to talk about how I got
3:52 connected with you guys in the
3:53 beginning?
3:53 Oh, yeah. Here, here's a good literally
3:55 went to a so born and rais San Diego.
3:57 Went to a meetup 50 minutes away from
3:59 home talking about these guys who got
4:00 started, did their first 38 plex.
4:02 Literally just asked the event host,
4:03 hey, do you have their contact info? Got
4:06 their info, joined the mentorship. Over
4:08 four years later, we're partnered on
4:09 deals now. How did the capital stack
4:11 work for the first deal you did by the
4:13 way? So you're I want to go back to the
4:14 very first deal for how you raised this.
4:16 You've never raised before. Kale's been
4:18 on the channel many times, but Cliff
4:20 knows Virgin Co was in the middle of his
4:22 high school, so he has like equivalent
4:23 of a 10th grade education. He did a
4:26 little bit of baseball in college,
4:27 dropped out end of first semester, end
4:29 of first year.
4:30 I didn't really make it through the
4:31 first semester. I stopped showing up to
4:32 the Zoom classes.
4:33 So didn't uh didn't finish going to the
4:36 first semester of online college. So
4:37 we'll count that as no college.
4:39 Fair. had never had a job outside of
4:41 Door Dash.
4:43 Caleb's coming into this. You find a
4:44 deal. This is in Macallen, Texas. How do
4:48 you raise capital on those credentials?
4:50 You have no money. You have no
4:51 experience. You have no job. It's out of
4:53 state. You're a teenager. How do you
4:56 raise the money? What was the amount of
4:58 raise? Give us that story.
4:59 Yeah. So, we'll start with the amount.
5:00 So, it was $90,000. Three people brought
5:02 30,000. I think even to this day, I
5:05 think it's more important they bet on
5:06 the individual than bet on the deal. I
5:08 think is still something that holds
5:09 true. I think you could have the
5:10 greatest deal of all time, but if you're
5:11 an idiot operator and you don't know
5:13 what you're doing, people are going to
5:14 like if they don't believe in you,
5:15 they're not going to believe in your
5:16 deal. So, I think one, building the
5:18 connections, building the relationship
5:19 so people actually believe in you and
5:21 who you are is I would say far more
5:24 valuable than a great opportunity. But a
5:25 great opportunity doesn't matter without
5:27 a good operator with people who believe
5:28 in them behind them. So, as far as that
5:31 goes, I would say that's the most
5:32 important thing. As far as that first
5:34 deal goes, it was two guys I had known
5:36 for an extended period of time. They're
5:37 both in kind of single family real
5:39 estate in San Diego. One guy's a roofer,
5:41 one guy's um incredible GC. Knew them.
5:44 They both give me 30. Me and the other
5:45 30. Literally made a post on Facebook of
5:47 all places and was like, "Hey, looking
5:49 for the other 30. Looking for a
5:50 partner." Was not soliciting capital.
5:52 Was looking for a partner to potentially
5:54 give some feedback on an investment. And
5:56 eventually she came in uh was with her
5:58 partner and that's kind of how it went.
6:00 But I think going like even like the
6:02 really hitting hard there. They have to
6:03 believe in you more than the deal or
6:05 they're not going to invest in you.
6:07 Yeah. I I think that is the the main
6:09 thing when I see people present. So we
6:11 run the multi family strategy
6:12 mentorship. One thing that I hear for
6:15 the deals that take time and we've never
6:16 seen a failed capital raise, but the
6:18 ones that are the hardest when I talk to
6:20 the operator, they kind of waffle back
6:22 and forth on structure. We had a call
6:25 this Monday where it's a great deal.
6:27 It's truly a great deal. And when I'm
6:29 like, "What is your actual cash flow on
6:32 it?" They're like, "Well, it kind of
6:34 depends. If we raise this debt here,
6:36 it's kind of low." And for investors,
6:39 we're hoping someone will come in and
6:42 15% equity. We could give up to 25%.
6:46 But as an investor, I'm looking at it
6:48 and the deal's awesome. When they did a
6:51 practice pitch with me, I'm like, I
6:53 would not invest in the deal because I
6:55 don't believe based on that presentation
6:56 that you have any idea what you're
6:58 doing.
6:58 That's a really important point.
6:59 Or what you're gonna offer. Know what
7:02 you are offering. It's not a crazy hard
7:05 ask.
7:05 And the crazy thing is that can change
7:07 like like let's say like a curveball
7:09 comes up, you can pivot. But it's when
7:12 you use this when people use this really
7:13 uncertain language. It could if maybe
7:16 not sure. I don't know. It's like when
7:19 you're talking to people about money,
7:20 you say things like not like super
7:22 overly arrogant, but you need to sound
7:24 confident. Don't if it's a truly a
7:26 question like some crazy outlandish
7:28 question that you do not have in front
7:29 of you. Today I got asked while driving,
7:32 hey, what's the top of my number for the
7:33 year? Exactly. I'm like, let me call you
7:35 after I get off the road. But for that,
7:37 it's like you don't say, oh, it maybe
7:38 could be sort of kind of this. It's you
7:40 give an answer and you say it
7:41 confidently. If it's a question you
7:43 truly do not know, say, hey, let me get
7:45 back to you shortly on that answer.
7:47 Yeah. Well, and when you present stuff,
7:49 don't present a whole bunch of multiple
7:51 situations. We we're we're presenting
7:53 this 100 foot deal, the only option in
7:56 there is that on our exit, we can extend
8:00 another 5 years if enough of the
8:02 partners wants to stay in the deal. I
8:05 don't like either or, but you pitch it
8:07 appropriately. It's not, oh, well, we
8:09 might do this or we might do this. It's
8:11 like, here's the best part. We have a
8:13 planned exit and we have a plan A, but
8:15 there's actually multiple exits on this.
8:18 Having multiple strategies as a benefit
8:21 as opposed to communicating, well, I'm
8:24 not quite sure how we're going to exit.
8:25 It will look a little different on how
8:27 we do it. We could do this or we could
8:29 do this. Right there, I'm already out on
8:32 that presentation. If it comes in as
8:34 like, hey, we have a plan A. This is
8:35 what returns look like on the worst of
8:37 the two options. Now, when we get here,
8:40 we could extend, but that is a bonus.
8:42 Our plan A is a 5-year hold with an exit
8:44 here, and anyone who wants to exit at
8:46 five years will be exited at year five.
8:49 And it's the certainty there. That's the
8:51 thing. It's your
8:52 I'm saying the same thing, though. It's
8:53 a it's a it's the only option. But if
8:55 you have a two-way thing,
8:57 give certainty in your answers.
8:58 People when you're pitching or to
9:00 investors or even people decision
9:01 makers, even a broker for crying out
9:03 loud, even about a deal, you don't want
9:05 to provide all this uncertainty. A lot
9:07 of guys when they're getting started,
9:08 this kind of goes back to just how you
9:10 talk and how you say things is more
9:11 important than what you say. But is if
9:13 you're talking really fast, high pitch
9:14 and you're like, I don't really know
9:15 when you're talking to a broker or an
9:17 investor. That's when people get asked
9:18 in the proof of funds. That's when
9:20 investors ghost you. That's when stuff
9:22 like that happens because they don't
9:24 know, like, and trust you. And you're
9:25 not going to get the no and the liking
9:27 part before you get the trust. Like you
9:29 have to talk, you have to talk to them
9:30 first. Actually build up credibility and
9:32 having credentials helps. Like after
9:34 doing I know you've done 30ome
9:35 transactions. time. I think this is deal
9:37 number nine or 10 at this point for me
9:38 crossing 300 units. It's like there's
9:40 that's 22 years old.
9:41 It's going to be 23 next year. There's
9:42 some track record still there. So that
9:44 helps. But again, when you're talking to
9:45 bigger fish, we're getting into the
9:46 space now where we're starting to deal
9:47 with family offices and starting to go
9:49 that route and starting to go bigger
9:50 fish there than we ever dealt with
9:51 before. We have to be confident. We
9:52 can't go into these meetings be like,
9:53 "Oh, you know, it could make sense for
9:55 you because it could do this, it could
9:56 do that." It's like even then you have
9:58 to be more stern and strict than ever.
10:00 Yeah. I think it's very, very important.
10:02 Now, when you're pitching capital,
10:04 speaking of certainty, what things need
10:07 to go into this presentation? So, let's
10:09 let's go back to, you know, the
10:11 beginning. You're someone doing that
10:12 first deal. You're trying to escape the
10:13 nineto-5 or do your first capital raise.
10:17 As an investor, what do I need to see to
10:20 feel the confidence that you have in
10:22 your deal?
10:22 I think there's a few things. I think
10:24 one, um, you need to talk about like
10:25 there's a few things. First one, um,
10:27 real estate's all about location. So,
10:28 you need to be in a decent growing area.
10:30 And if you're not, you need to have a
10:31 really good explanation of what your
10:33 competitive advantage is there and what
10:34 makes the deal make sense.
10:35 Yes.
10:36 Cuz if it's in a if it's in Gary,
10:37 Indiana, and you live in San Diego,
10:39 California, I'm not giving you a dime.
10:41 So, before we get into numbers, what are
10:42 we buying and why are we buying it?
10:44 Yeah. Exactly. There needs to be like
10:45 you don't need to be some like
10:47 Shakespeareesque storyteller, but there
10:49 needs to be something there off why
10:50 you're doing what you're doing and how
10:52 it makes sense. And then on numbers, on
10:53 a pitch, I am you are never over
10:55 pitching on numbers. Like, if they ask
10:58 questions, be ready with answers.
10:59 understand your numbers, understand your
11:01 deal,
11:02 but you're not over there like, "Hey,
11:03 let me pull up my 15 tab Excel
11:05 spreadsheet. We're going to run through
11:06 this in person or over a Zoom call."
11:08 Have highle numbers so they ask more
11:10 in-depth questions. You can send them
11:11 the analysis if they really want it. But
11:14 the more information you give them past
11:15 that point, they're going to spend years
11:17 because they don't understand your Excel
11:18 model. They don't understand how you're
11:20 underwriting. They don't understand all
11:21 this stuff. They're going to ask more
11:22 questions and talk themselves out. Keep
11:24 it high level and be confident. 15%
11:27 agree. That is exactly your numbers do
11:30 matter, but at the end of the day,
11:31 you're going to tell the story of the
11:32 deal and people are going to be about 90
11:34 to 95% sold right there. Like when you
11:37 present a deal that I'm excited to be a
11:39 part of, I am just praying that the
11:41 numbers look good. Next, you have to
11:43 present, okay, well, how is your money
11:44 safe? I don't want to lose money. That's
11:45 the most important thing is that's a
11:47 really good point. People want security.
11:49 How do you like illustrate security in
11:51 that investment? If it's like I mean if
11:53 they if they didn't want security they
11:54 go look at some AI startup and pray to
11:56 God it goes up a million%. That's
11:58 they're they're talking they're looking
11:59 at real estate for a reason.
12:00 Real estate you're typically looking for
12:01 a riskreward profile typically for low
12:05 risk moderate to high return. You're
12:07 usually not looking for the massive
12:09 multiples unless you get into
12:10 development which again the risk profile
12:12 changes. Now you're looking at moderate
12:13 to high risk for a typically very high
12:15 return. But that riskreward profile in
12:18 real estate is really really important.
12:20 The average investor is looking for
12:22 stability.
12:23 Agreed.
12:24 In your project. So, how are you
12:25 preserving the capital and how do you
12:27 plan to grow it? But I think it goes in
12:29 that order. I I I think you nailed this.
12:31 What is the project? Why is your money
12:33 safe? And then lastly, how are you going
12:35 to grow my money? And if it makes sense
12:37 with their goals, they're going to fund
12:39 that deal every single time. And if you
12:41 deal like we had a lady earlier in this
12:43 investment who kind of um went awall is
12:46 the right word, but I haven't heard back
12:46 from her. She was also looking at some
12:49 different wishy-washy tech startups. I
12:51 want to say wishy-washy, but more the
12:53 boomer bust. And it's like if you're
12:54 dealing with some investors, some people
12:56 love the boomer bust. And if they're
12:57 that's what they're looking for, they're
12:59 probably not the investor for you. Just
13:01 because they have money doesn't mean
13:02 they should be an investor in your
13:03 project.
13:04 Yeah. And not every deal is going to
13:05 make sense for every investor. There's
13:07 different deals with different profiles.
13:09 Some are cash flow heavy, some are
13:10 multipleheavy. There's different targets
13:12 for different people. A lot of it is
13:14 lining up the right person to the right
13:16 deal. Absolutely. All right, guys. It
13:18 was a quick episode, but wanted to share
13:19 everything that we're doing on the
13:20 capital raise. Get Caleb back on the pod
13:22 since we're working together today.
13:23 Everyone, hope you enjoyed this episode.
13:25 See you on the next episode. See you.
13:28 They for wash.