Selling the Numbers to Private Investors

[Shaun Williams]

Hi BP community,

I recently started my property portfolio using a bank loan, and decided to explore private investment to speed up the growth of my portfolio.

I have an investor friend who is interested in backing me after I shared a presentation outlining my results on my existing property and plans for future investment. My strategy is buy - renovate - Airbnb - hold to build up a portfolio of Airbnb properties here in Cape Town, South Africa, where Airbnb is very popular.

The investor now wants to see in depth financial breakdowns of potential deals and how we could structure a deal between us.

Can anyone point me in the direction of resources that can walk me through every step and consideration for deal analysis, particularly through spreadsheets?

Much appreciated,

Shaun

[Don Konipol]

@Shaun Williams

You’ll have to make assumptions about revenues for each property based on short term rentals. Some of these figures can be extrapolated from AirBNB data. Then using a spreadsheet account for all expenses. If the plan is to hold for 5 years and sell, you’ll have 5 years of projections and a cash return at the end of 5 years equal to sale price less any costs associated with the sale.

To make a deal attractive to a passive investor, you can work backward to arrive at a return. Investments in more attractive, less risky investments are available to investors through large syndicators. They’ll typically pay 6-8% yearly, with a projected capital gain upon the sale of the property. Investors typically are projected to receive a 15% internal rate of return on their money.

So, an investment like this wouldn’t seriously generate any interest at less than a 20% average annual return over the holding period. So first, see if your projections can provide this return overall. If not, there would be no reason for a knowledgeable investor to invest in the deal. Assuming the irr is high enough, you can thenwork backwards to see how the profit can be divided for the investor to receive a 20% return. You get the profit generated over and above this threshold.

If you were syndicating a large deal, you would be able to get more attractive split, as investors would be interested at a lower return.

Good luck! If the profit in STR is sufficiently higher than yearly leases, your deal will pan out.