Thread by @Levijameshere

In 2021 Harbor Capital acquired $28M of industrial R/E in Texas. Our latest offering raised $10.8M of equity in 9 minutes.

Here is the definitive playbook on how to raise equity to buy real estate.

This is not a list of hacks or shortcuts, just the right way to do things.

Before we start, let’s address the 🐘: Not everyone has the same starting line in this race. Some have family $ or connections that will help them get out ahead. Yet, over time, every operator will get the investors they deserve. Do things right and the $ will find you.

1 Operate with integrity - A GP has many opportunities to hide little facts or make things sound better than they really are. Don’t go down that dark road, even though it may make life easier in the short term. Investors can sniff that crap out and won’t work with you again.

2 Do great deals - Better to be waiting patiently for the right deal than distracted on a mediocre asset while the right one passes you by. One bad deal can sink a GPs reputation and for good reason. Be disciplined and only jump in when you are certain.

3 Over-communicate – It is better to provide too much information than too little. Spend lots of time writing clear and accurate updates and share everything about the deal. (Bonus points: Put a TL; DR at the start for investors who are in a hurry)

4 Communicate early – The temptation to wait to send your update until an issue has resolved itself is very real. I firmly believe this is the wrong strategy. Instead, send the update with a clear and concise explanation of what is going on and how you are handling it.

5 Never “update” your timelines. I invested with a GP who would constantly create new timelines. His updates would always say, “We are on track and hitting our timeline” when in truth he was substantially late. Choose a timeline and stick to it, even if it's uncomfortable.

6 Own the bad things that happen – Be responsible for everything, and your investors will likely forgive you. Blame-shift and finger-point and they will never invest with you again. Go overboard with this one. “We underestimated the potential for tornadoes in the area”

7 Don’t be greedy – GPs who take too much in fees and promote risk getting blacklisted. When the market is good, you might get away with it, when the market turns, these guys will be out on the street while the rest of us are buying hand over fist.

8 Be careful not to go too fast – When you get out in front of what you can operate with excellence, you will start to drop balls and lose the confidence of your investors. Pull back before it is too late, proceed with measure.

9 Take good care of your past deals – Don’t become a deal junkie who is more excited about doing the next deal than taking care of the ones you already have. If you are so busy that you start missing things, you will erode the trust of your investors.

10 Write a clear investment thesis for each deal in a pitch decks/offering memorandum. No matter if it is your 1st or 100th deal, or if you are assured to raise capital because of your reputation, every single deal should get a complete pitch deck with a sound argument.

11 Build great financial models – Go the extra mile and make sure that your thesis holds strong through a battery of sensitivity analysis checks. Bonus: Share your full model with investors.

12 Charge fees – Charge modest fees so that you have the capital to do a great job stewarding your deals no matter what the market throws at you.

13 Over-raise and keep a large reserve fund. No one likes a capital call. Most times when GPs make a capital call it was entirely avoidable. They failed to stockpile enough cash for a rainy day. We always choose to raise extra capital and are ok with the lower IRR.

14 Spend lavishly on your finance team and systems. Hire great people and pay them well. Buy the best software and hardware you can find. You won’t regret it. We use Yardi, Juniper Square, HubSpot, Zenefits, Google Docs, and Mac computers to operate Harbor Capital.

15 NEVER, NEVER, NEVER co-mingle funds with other deals or your company expenses. Use separate bank accounts and separate financial tracking systems for each company.

16 Use separate entities for each property. The liability protection offered by putting each property in a legal silo is worth every penny.

The real estate market will turn eventually, and when it does two things will happen, 1.) Capital will dry up. 2.) Opportunities will come around to buy great real estate at great prices. The few who follow these principles will be able to keep raising equity and buying.

Thanks, @thesamparr, and @sahilbloom for the amazing inspiration these past few months that helped clarify the thoughts for this thread. You guys are legends.

I founded harborcap.com we are a hyper-focused REPE shop buying only Class B industrial real estate in Texas. We co-invest our own capital with 20-50 LP investors in each deal and hold for the long term.

Buy - Refi - Die

I would be so thankful for a thread re-tweet! 🙏