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Here’s an Answer to a Major Burning Question When Dealing with Private Investors

by Adam Davis on March 13, 2010 · 0 comments

  

Remember those 1980′s workout tapes?

There would be a guy or girl on with leg warmers, Spandex, huge hair that would catch fire if it got close to something hot, a perma-smile and they were always encouraging you to “feel the burn!”
(not that I ever worked out any of those tapes…)

Often in a tribute to the 1980′s fitness tapes, real estate investors have some burning questions. Burning questions are beyond just normal queries, like what is the meaning of life and why does the earth spin

Here’s a red-hot, smokin’ question I get all the time:
“Adam, what do you say to a potential private investor to get them interested in placing funds with you?”

The roof, the roof, the roof is on fire!

Ok, so I’m gonna admit that this is a pretty darn good question. First, if you’re even asking this question it means you didn’t just roll out of bed and put an “I heart real estate investing” sandwich board on and meander about.

But…but…but…

You are missing something really important in the framing of the question: “…what do you ‘say’…”
Notice how I emphasized ‘say’. This is a big trap. Here’s why: I’ve found that what is most important is what you can get the investor to say versus what you say to the investor.

It is absolutely critical in any conversation with a private investor that you find out the following things:

  • Investing experience – What have they invested in before? If the prospective investor has a portfolio that is managed by an advisor or company, your approach will be different than if they manage their own money. This differs person to person.
  • Investing appetite – What they are inclined to invest in? Some people are not inclined to invest in anything but CDs and government bonds. It’s pretty useless to try to sell them on investing with you. Don’t waste your time on it. On the other hand, people that have invested in stocks, mutual funds, commodities or other types of real estate (REITs, LPs, etc.) are great prospects.
  • Investing triggers – What do they like about investments/what do they want? Some people are more attracted to the upside of the deal and won’t care much about collateral. Other investors will only consider investing with a mortgage or trust deed. Does the investor seek greater diversification to prevent further losses to their portfolio? Are they afraid of inflation?

Yes, this requires you to learn more about the person who may invest with you instead of being a blowhard about how great you are and how great your deal is, which is what most real estate investors do. They expect the checks to starting writing themselves as soon as the words “secured return” or something similar pop out into the air.

I don’t know about you, but if I had the chance to stack the deck in my favor, I would do it. Pulling these three things out of the investor in conversation is pretty easy. A lot easier than you think. You just have to remember the old axiom: “God gave you two ears and one mouth for a reason.” Listen more than you talk.

Start with questions like this:

  • “What do you think of the market right now? How has portfolio done?
  • “What are your thoughts on the real estate market?”
  • “Did you know that some local real estate investors are making $<insert number> per deal in profits on each deal?” It seems like a great time to buy – what have you heard?”
  • “If there was a way you could earn returns of x% or more, would you be interested in learning more about that?”

Weave into the conversation some qualifiers, like approximately how much they’re comfortable investing at any given time. Here’s one to use on that:

  • “My private investment funds have minimum investments of $50,000. Do you think that’s an unreasonable amount for you?”

Stop Guessing

You see, the whole thing is for you to not have to guess about what to say to the potential private investor. You let them tell you exactly what you need to say. When you ask questions and listen, you’ll discover what they want. The next step for you is to just plug in. With the investor needs and desires known, you can cater your opportunity to fit accordingly.

For instance, if the investor is interested in making up lost ground, for example, from getting pillaged by the stock market, then you can present your opportunity as a way to make up those losses. If the investor is looking more for a secure and reliable holding for their funds, offering a nice secured mortgage loan that pays steady interest would work well. The whole key to short-cutting this thing is to take the focus off of you and put it on the investor.

You’ll be glad you did.

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