Here's what I've got for you this week.
- Real Estate Investing Without the Hype - Part II
Introduction to two platforms fundamentally changing the real estate capital formation landscape; challenges and opportunities.
- Podcast Episode 7.3: The Allocator, a new way to finance CRE
Meet Bobby Sharma, a capital allocator and co-founder of Connected Capital, who discusses the allocator model.
- This week's white-paper
This week's white paper, What is a PPM? provides detailed insights into how these documents protect stakeholders and why they cannot be copy/pasted.
Plus, a reminder of this year's three main initiatives:
- Investors:
I am getting increasingly active in finding personal real estate investment opportunities.
Follow my journey here.
- Sponsors and Capital Allocators:
Join the waitlist to get the exact system our clients have used to raise nearly $1bn in equity capital.
Join the waitlist here.
- LinkedIn Mastermind:
LinkedIn is an amazing platform for networking and scaling. Use coupon: FEB14 before February 14th for $200 off the enrollment:
Join the next Mastermind, here.
As always, please do not hesitate to email me directly if you have any questions.
Best,
Adam
***
Real Estate Investing Without the Hype
Part II
Last Week’s Recap:
The real estate capital-raising industry is facing a growing problem:
- Misleading investor pitches that obscure risks.
- Overhyped marketing that makes capital raising look effortless and real estate investing low risk.
- Newcomers branding themselves as seasoned pros, making it harder for investors to discern real expertise.
Since the legalization of general solicitation ten years ago, the industry has evolved through four distinct phases - early adoption, rapid growth, Covid-era euphoria, and now the rise of capital allocators – individuals who negotiate preferential deals with sponsors and pool investor capital.
While some add value, others used aggressive tactics that fueled the 2020-2024 bubble, now leading to widespread distress.
With market conditions changing, only experienced, high-integrity professionals will thrive. The next phase of real estate investing will favor those who prioritize transparency, compliance, and investor protection.
This Week: Two Platforms Reshaping the Industry
Now, we turn to two relatively new platforms changing how capital is raised in real estate and investors deploy funds – their pros and cons.
1. Go High Level (GHL)
Raising capital at scale – or operating any business at scale – requires automation.
Automation includes developing effective sales pages with lead generation forms that trigger automated emails and/or text messages when someone submits a form.
At GowerCrowd, we integrate multiple best-in-class platforms to create seamless investing experiences for our clients’ investors – like having a team of specialists vs. one generalist.
GHL is a generalist platform that offers an all-in-one automation package where all systems are designed to work together. However, we have fundamental concerns about its use for capital formation.
The Issues with GHL's Business Model
While an all-in-one platform can be appealing, GHL operates on an unusual financial model that introduces inefficiencies other platforms do not tolerate.
GHL’s structure is based on agency memberships, where a user pays a relatively small monthly fee (around $500/month) but can white-label and resell the platform indefinitely, keeping 100% of all upstream revenue while paying nothing back to GHL.
For example, someone might pay GHL $500/month but resell it 100 times, generating $50,000/month while paying GHL only the original $500/month.
So, how does this revenue model work?
The key lies in small, incremental fees that users barely notice but that GHL collects e.g. fees for emails and text messages sent. GHL’s incentive is to maximize the number of users on its platform so more emails and texts are sent, driving revenue at scale.
This creates two major problems: one for users and another for the real estate capital formation industry.
Problems for Users
1. Poor Customer Support
- GHL lacks the bandwidth to provide strong product support and does not offer support for users’ downstream clients.
- We tested their support and found it weak and ineffective.
- This forces users to provide their own support, adding an unexpected layer of cost that many don’t anticipate.
2. Email Deliverability Issues
- GHL’s financial model prioritizes volume over quality, meaning it focuses on sending more emails rather than ensuring those emails reach inboxes.
- Deliverability - the extent to which emails actually land in inboxes - is the most critical factor in email marketing; you can’t open an email if it never reaches your inbox.
- GHL appears to have lower deliverability standards, with users reporting significantly lower open rates and a higher percentage of emails ending up in spam.
Problems for the Real Estate Capital Formation Industry
Originally designed for non-real estate marketing agencies, GHL attracted some of the best digital marketers, largely because of its high commissions (100% revenue retention for resellers).
To scale quickly, these marketers had to solve two problems:
- Making the platform easy to use despite its vast functionality (emails, text messaging, website building, sales funnels, etc.).
- Providing customer support since GHL does not offer it.
To address these issues, marketers created pre-built, plug-and-play templates - landing pages, sales funnels, automated emails, and text messages - that could be sold as ‘marketing systems in a box.’ By simplifying complex marketing systems into templates, they were able to mass-produce them and streamline support.
Because GHL was marketed as a one-size-fits-all solution, it inevitably caught the attention of real estate capital raisers.
After all, what could be better than an out-of-the-box system for raising capital?
The Rise of Unqualified Capital Raisers
Two main user groups have emerged:
- Those who sell and support GHL for capital raisers.
- Those who use the platform to raise capital.
By commoditizing cheap, simplified marketing systems, GHL has enabled a new wave of capital raisers - many with little or no real estate investment experience - to pitch the platform as a quick and easy way to raise capital.
This has led to an industry-wide issue: novice capital raisers using templated messaging that mimics institutional real estate professionals, blurring the lines between inexperience and expertise.
2. The Avestor Platform
The second platform is Avestor.
Avestor is similar to GHL in that it serves as a one-stop shop for investor management - think Jupiter Square or IMS on steroids.
Unlike other backend systems that focus solely on document management, Avestor is designed to simplify the creation and management of customizable investment funds.
Key Value Propositions
1. Customizable Fund™
- Avestor has developed a trademarked legal structure that allows a real estate fund to include multiple deals from multiple sponsors.
- Investors can pick and choose which deals they want to invest in, rather than committing to a traditional fund where their capital is pooled and managed as a whole by a single sponsor.
2. Integrated Services
- The platform combines fund setup, administration, investor management, compliance, legal documentation, accounting, and tax services into a single solution.
- This makes it easy and affordable for users to set up and sell securities in their own funds.
3. Comprehensive Support
-
Beyond its technology, Avestor provides customer support on all aspects of raising capital, including:
- Deal strategy
- Waterfalls (profit distribution structures)
- Manager compensation
- Legal documentation
- Marketing
By streamlining the fund setup process, Avestor makes it easier than ever for users to enter the real estate capital-raising business.
One of Avestor’s founders, Badri Malynur, discussed their business model in a podcast conversation I had with him earlier this year.
***
The Impact on the Real Estate Capital Formation Industry
Together, these two platforms have lowered the barrier to entry for real estate capital raising by providing ‘fund in a box’ solutions along with templated marketing systems.
However, this ease of entry has led to a blurring of the lines between seasoned professionals and newcomers with little or no experience. Templated messaging borrows institutional real estate terminology – terms like fund manager or fund of funds – creating confusion and making it difficult to distinguish experienced professionals from novices who may lack awareness of real estate’s complexities and risks.
The Challenge to the Industry
These platforms, and others like them, are making it too easy for unqualified participants to enter the industry. While they do attract some qualified professionals, they also draw in many who lack a true understanding of real estate investing risks. These individuals, in turn, pass along an oversimplified and misleading narrative to their downstream investors.
Further fueling this trend are the mass-produced, hyped-up mega-conferences that claim to train people on how to raise capital. Despite disclaimers and fine print, these events often promote a simplified and unrealistic vision of real estate investing, selling the dream of passive income, wealth-building, and financial freedom.
This creates two major problems:
- An industry flooded with repetitive, templated messaging, making it difficult for investors to discern real opportunities from marketing hype.
- A crowded, noisy marketplace that makes it harder for high-integrity, professional capital raisers to stand out.
Overcoming the Challenges
To prevent another investor-driven bubble, fueled by exaggerated claims and over-reliance on templated sales pitches, there is an urgent need to raise the quality of communication and education in real estate capital raising.
With so much noise in the industry, it’s becoming harder for investors to differentiate good opportunities from bad ones – and harder for dedicated, professional capital raisers to succeed.
The solution? More transparency, better education, and a commitment to integrity in how deals are structured and marketed.
***
My Approach to Solving These Challenges
I’m actively working to address both of these issues.
First, I’ve decided to scale back our private client business – we’re only taking on two more clients (email me if you’re interested) – to focus instead on guiding new capital allocators i.e. those who’ve entered the industry in the last decade.
Through a Mastermind program, I’m providing personalized, strategic instruction on how to stand out in this crowded, noisy marketplace. In it, I reveal the proven systems and strategies my private clients have used to raise nearly $1 billion in capital.
For investors, I’m also sharing my own experiences and lessons from my long real estate career as I evaluate real estate syndications and funds for investment in the coming months.
Here are three ways you can join me:
- Sponsors and Allocators: Join the waitlist for my next Investor Acquisition Mastermind, here, where I’ll share the tools and strategies to raise more capital effectively and compliantly.
- Investors: Join me here as I make my own investments this year, focusing on capital protection, income streams, and long term wealth generation - in that order.
- For everyone: My next LinkedIn Mastermind where I’ll show you how I’ve increased by daily inbound prospect generation flow by 2 times and over 10x’d my engagement stats.
Learn more about that and sign up to the next Mastermind here. Use the coupon code FEB14 (expires Feb 14 – duh) for $200 off that event.