Awhile ago, a new investor approached me with a deal. This person wanted to find investors and was asking if I was interested myself or if I knew anyone who might be interested.
What was the deal? Well, that was the problem.
This person talked a lot about it, but there was nothing concrete to show.
- No investment package describing the deal
- No estimated return on investment
- Not sure how much money was required
- Hadn’t thought the whole thing through
- Was completely ‘flexible’ with options for bringing in investors
– no decisions were made
When trying to attract large sums of capital to invest in real estate, remember…
People don’t want wishy-washy deals
They want something concrete and safe
Most investors look for the numbers and a concrete plan. They want to know their money is safe with the deal and with YOU.
While some people are really good at ‘selling’ a deal verbally, with nothing on paper, most of us need to build credibility before we convince an investor to part with their cash. This is especially important when you’re dealing with people you don’t know.
How do you build credibility and present a real estate deal in the best possible light?
Do your research
Are you buying property under market value? If so, can you prove the current value with sold market comparables? Are you buying property for the long term, and hoping for appreciation? If so, have you researched the historical appreciation rates for your city or your area?
You have to know your method of real estate investing inside out, and be able to explain exactly why you believe you will make money on your deal.
Know what you want
Do you need $150,000? $500,000? Extra money for renovations? Is it a cash investment? Or RRSP mortgage funds? How will the deal be structured?
If you offer an investment to a stranger, if you don’t know the concrete answers up front, they won’t hand over their money.
You may get lucky with friends or family, but strangers don’t know you and you need credibility. Part of that is making decisions and knowing what you want.
Explain what you have to offer
Are you offering a flat return on money invested? A percentage ownership in the property? A secured RRSP or other type of mortgage? Are you looking for a full partner, who will help with the investment workload?
If you don’t know what you want, rest assured no one will invest with you.
Have a plan
Is the deal a rental? A flip? Does it require renovations? How much renovation capital is required? How long are you planning to hold the property? What are your exit strategies? (you HAVE thought about those, haven’t you?)
You need to know all of this, and more, and be able to communicate it all to your potential investors. Don’t make the plan 100 pages long. Short and to the point works well.
Give yourself time
Do you need an investor to make a decision very quickly based on very few details? If so, you can almost guarantee they will say ‘no’, unless you’ve already built a reputation with them and set that expectation up front.
However, be careful with short timelines, as it can make you appear ‘needy’ for the investment capital and will turn people off. Remember… people can sense if you’re desperate for money.
Create a proforma profit analysis
How much profit will the investor earn on their investment? Over what time frame? If you create a proforma (estimated) profit analysis, you will show the potential investor that you have thought through all the financial details of the deal.
A proforma should show approximately how much profit an investor will receive in cash flow, appreciation, mortgage pay down, and tax savings. This is a critical piece for presenting any investment opportunity.
Create a bio
Who are you? What is your investing and professional experience? Who are your team members? Why should an investor work with you? Take the time to write up a bio about yourself, especially if you’re just getting started. You will appear more professional and people will be much more likely to invest with you.
If you don’t have any real estate experience, rely on the experience of your team or your mentors. For example, “My team of professionals has over 30 years combined experience with investment real estate, and my personal mentor has purchased over 15 properties using a proven real estate investing system”.
While this sounds like a lot of extra work, just put yourself into an investor’s shoes for a moment. Who would you rather lend money to?
- Investor A – no plan, not sure what they want, no analysis
- Investor B – fully defined plan, estimated profit, research completed, investment amount and terms defined, investment and professional experience clearly outlined
Unless you are a risk taker or you know the person really well, Investor B is the obvious choice.
By performing each of the above steps, you will instantly boost your credibility with a potential investor, and make them feel their investment capital is safe with both you and the deal.