On the podcast, I recently spoke with Axel Ragnarsson, an active real estate investor based in Boston, MA, and the founder of Aligned Real Estate Partners.
Axel began his journey with small individual deals and has since raised over seven figures in equity, undertaken joint ventures, and been a principal party in transactions totaling over $62 million. With Aligned Real Estate Partners, he is currently focused on acquiring class B and C value-add assets in multiple markets across the United States, particularly New Hampshire and Florida. Currently, they either directly own or have a GP interest in over 450 units of multifamily real estate.
Additionally, Axel is a founding partner of Blue Door Living, a property management company in NH managing over 300 units, and hosts The Multifamily Wealth Podcast, one of the industry’s top-rated multifamily real estate podcasts.
Watch the full episode or keep reading for the best real estate investment insights from Axel.
How do you raise capital for your first big real estate deal?
Axel’s first capital raise was for an out-of-state deal called The Tom Watson Apartments in Florida.
Purchased in 2021, Axel partnered with some of his network contacts based in Florida to secure the deal directly from the seller. This deal required a relatively small capital raise of approximately $400K. While $400K is a relatively small raise in the real estate world, it was a significant milestone for Axel, especially as a first-timer asking his network for such an amount.
The capital came from five investors, including himself, his business partners, a family friend, a professional contact, and a cold contact nurtured through Instagram over nine months ([link to podcast episode] listen to the full podcast episode to hear this incredible story!).
The acquisition cost for the 16-unit Tom Watson Apartments in Lakeland, FL, was just over $1M, averaging about $66,000 per unit. The property appraised for significantly more than the purchase price despite being acquired in mid-2021 when many were overpaying for properties. The deal was sold just 18 months later, generating a threefold equity return at the project level and a two- to threefold return for investors.
This successful venture provided Axel with a crucial learning experience and a roadmap for future deals, enabling him to raise funds more confidently and scale his business without spending so much of his own cash. However, it was an adjustment for him to get comfortable taking money from others and the new reporting requirements and obligations that come with that.
To successfully raise capital, Axel emphasizes the importance of telling your story online. This involves creating content about your business, sharing details about the deals you’re doing, the returns you’re generating, and market insights. Creating an email list and nurturing it with long-form, value-add content is also essential.
This approach builds awareness and trust over time, ensuring that when a deal arises, you present it to a warm audience rather than cold prospects. This strategy will go a much longer way to build trust with your audience than a 30-minute pitch meeting ever could, and your investors will be ready when you are.
Why should you raise capital for real estate deals?
With the added responsibilities and complications that come with raising capital, one might wonder if it is even worth it.
From Axel’s perspective, it is simply a requirement of the industry. Real estate is inherently capital-intensive, requiring substantial funds to purchase properties, undertake renovations, and manage them effectively.
Axel started his journey right out of college, aiming to build a portfolio of buy-and-hold properties. However, he quickly realized that this approach stretched his resources too thin and was unsustainable for scaling his business without raising external capital, so it was a necessary next step in his real estate journey.
How do you find real estate deals?
Aligned Real Estate Partners excels at finding off-market deals, which are advantageous for saving on broker fees, securing properties at favorable prices, and derisking the investment as much as possible.
To do this, a significant part of their strategy is maintaining a strong presence in their target markets. This includes sending thousands of direct mail pieces monthly, conducting cold email outreach, and consistently creating content on social media, podcasts, and through their email list.
This approach ensures they are top of mind for potential sellers and brokers, allowing them to secure properties below market value and with wider margins. For example, being able to secure a $1.5M project for just $1.25M drastically changes the projected returns and risk profiles for LPs and relies less on market growth.
Furthermore, their focus on 10- to 15-unit buildings allows them to operate in a niche market, targeting mom-and-pop owners who may not be professional investors. These types of sellers might be emotionally motivated to sell due to various personal reasons such as debt, inheritance, divorce, retirement, or financial stress, so they are often sold at a deep discount that more prominent investors would never sell at. Also, since Align is not competing against large institutional investors, the pool of potential buyers is much lower, and they don’t face much competition.
While this strategy is not scalable to thousands of units per year, it enables them to easily acquire 200-250 units annually, yielding much more competitive returns compared to institutional investors.
Align will likely evolve its strategy and graduate to bigger deals in the future, but pursuing these types of deals makes sense for where they are at right now as a company.
What type of fee structure works for a firm making small deals?
Aligned Real Estate Partners maintains a simple fee structure: a 2% acquisition fee, a preferred return, and a 60/40 profit split. They do not charge tiered waterfalls, asset management fees, or disposition fees. This straightforward structure is tailored to their smaller deals, which typically range between $2-5M.
The 60/40 split is higher than the industry standard but is justified by their light fee structure and the deep discounts at which they acquire properties. Their strategy involves fast turnarounds, often less than a year, enabling them to reinvest capital quickly.
However, this strategy didn’t always work so favorably for them. In the early days, Axel acknowledges that the first few deals were too generous to investors because he was not paying enough to himself and his team behind the scenes. He would have preferred a structure with higher preferred returns for investors and a more aggressive promotion for himself. Alternatively, he could have charged more fees.
Each project requires a lot of work, time, energy, and marketing money, especially when buying directly from the seller, and it is important to compensate yourself to make the work worthwhile.
What factors should you consider when creating your fee structure?
When establishing or evaluating your fee structure, it is essential to understand three things: your asset class, where your fund falls in the competitive landscape, and the returns you can deliver compared to your competitors. Once you have a deep understanding of those three things, work backward to develop a fee structure that works well for both you and your investors.
Above all else, make sure you can profit enough from the deal and pay your investors so that everyone involved is adequately compensated. Value your time for all the hard work you put into it.
How do you build a strong team to scale your real estate business?
Building a strong team is crucial for scaling a real estate business, and Axel would not be able to do what Align is doing without a robust team.
First, Axel recommends hiring a great acquisition manager dedicated to finding and securing the best deals. Next, hiring virtual assistants for administrative tasks and social media management is a great way to supercharge the business’s day-to-day operations and marketing efforts. Third, partnering with a talented and reliable property management company is critical to keep everything running smoothly.
The next key hire for Aligned Real Estate Partners will be a full-time asset manager to oversee deals, better track finances, and hold property managers accountable for quality work.
Questions to ask when you’re considering making your first investment
When considering investing, it’s essential to evaluate the general partner, the details of the deal, and the market the deal is in. Make sure you can trust these three things before making any commitments.
Key questions to ask before making a real estate investment include:
- Has the GP done similar deals before? If so, that is a great sign.
- Are they changing markets or asset types with this deal? This is a red flag.
- What are their underwriting assumptions regarding rent growth, exit cap rates, and projected rents? Do the numbers look promising and trustworthy?
- Is it a good deal?
- Are the GPs financially healthy? Debt and poor financial decisions are major red flags.
- Do the GPs have a criminal history or any indictments for fraud? Obviously, this is a major no-go, but you’d be surprised how many people don’t check for things like this! A simple Google search of their name should bring this up.
- Is the deal in a good market? Dig deep and examine the market context beyond population growth or decline.
By asking these questions, you’ll be in a much better position to understand whether it is a trustworthy investment.
