The When, Why & How of Communicating With Your Investors

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While I wrote a lot about FINDING investors for syndicating apartment building deals, I’ve not really discussed how to interact with your investors AFTER closing. It’s critically important that you communicate with your investors, for at least three reasons:

  • Common courtesy. It’s polite to keep in touch with people who funded your dream.
  • To avoid surprises. Investors don’t like surprises. They also don’t like silence. If the emails and phone calls stop, it’s a giant red flag. It usually means something is wrong and the investor about to lose their money. Don’t make this mistake.
  • So that you know what is going on. Having investors to “report to” forces you to pay attention to the investment. While this may create additional work for you, it’s not a bad thing. Having to track key metrics and put out reports means that you know what’s going on — a very good thing.

Now that we all agree that communicating with your investors is a good thing, let’s talk about WHAT you should communicate.

Related: 4 Ways to Use Hard Money & Private Financing for Your Rental Business

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What to Communicate to Your Investors

I normally send out an email to the investors once per quarter. That email contains an Executive Summary, some supporting reports, and how much (if any) the distribution checks will be. Let’s take a closer look at each of these:

Executive Summary

The Executive Summary should be as short as possible (since most people won’t read it if it’s long) and should cover these points:

  • Income. Discuss any unusual vacancies, delinquencies, and evictions, especially if those are substantially different from your projections.
  • Expenses. In this section focus on any unusual expenses that may be higher than expected.
  • Other. Talk about anything major that happened. Celebrate some successes. Discuss challenges and what you’re doing about them.

Key Reports

The two key reports that should accompany your communication is the Profit & Loss Statement and the Balance Sheet. I’ve found that most investors don’t spend the time to read these documents, which is why the Executive Summary is so important. However, you’ll need these reports to produce your commentary, so you might as well include them for completeness.

Distributions

The other report you will want to include is a bank balance report that shows the current amount of operating capital, the reserves you want to keep in the account, and the amount of cash available for distribution.

The Annual Report

At the end of the year, I put out a larger annual report that is just like a quarterly report, but it covers the entire year. I also include the plan and budgets for the following year.

When to Increase Your Communication

I normally provide a report, along with any distributions, once per quarter. If a project is stable, I might reduce that to twice per year. However, in these 3 instances, it’s important to increase the level of communication…

  • In the beginning, when things are new and just starting out. The project is new, lots is happening, and the investors may be apprehensive about their investment. It’s good to check in with them more frequently.
  • When there are major changes, for example, a new property manager, or lots of turnover. Let your investors know what’s going on and put them at ease.
  • When things aren’t going to plan. Perhaps you haven’t been able to fill the vacancies fast enough, or the renovation is taking longer or costing more, or there have been unexpected expenses and repairs. Maybe the building is even losing money. Bottom line, you are behind on your projections. Your investors won’t make the return you projected for them, or perhaps they might even lose money.

Related: 4 Essential Steps to Take BEFORE Seeking Private Money

Most real estate syndicators stop communicating when things start going badly. This is a huge mistake because it angers the investors, and if it continues, may result in lawsuits. Plus it’s just plain rude. My approach is to increase the level of communication to let the investors know what’s going on. And if, God forbid, you end up selling for a loss, they won’t be taken by surprise.

Conclusion

I’ve been a silent investor in projects where I rarely heard from the sponsor. In one case, the deal went bad, and the sponsor became radio silent. The investors became increasingly agitated, began to organize, and eventually sued the sponsor.

If you have investors in your deal, it’s critical that you communicate with them regularly. It’s common courtesy, keeps your investors happy (and out of court) and it gives you the discipline to know what’s going on with your project.

How do you communicate with your investors?

Let us know with a comment!

About Author

Michael Blank

Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus is buying apartment buildings by raising money from private individuals. He’s been investing in residential and multifamily real estate since 2005. He is the creator of the Syndicated Deal Analyzer and the eBook "The Secret to Raising Money to Buy Your First Apartment Building".

8 Comments

  1. Adam Schneider

    Michael,
    Fantastic article. You shared tips that I’m going to implement. I like to show before/after photos of projects to my investors. Also, for first time money lenders, I send a really nice bottle of wine to their home to celebrate when a house closes. I find that they share it with their spouse, and it gets the spouse more interested in doing future deals!
    Adam

  2. William Morrison

    Great Recap.
    As an investor my goal is to start with the people side first, not the deal.
    I’d like to find out before I invest what their track record is and not from them. I’m talking about their communication track record. Too many talk a good line. An accountant gave me one of the best leads. They knew the track record and quality of people involved.

    Funny the same qualities you mention above are important in a Property Management firm as well. Hard to fix when people leave that made a firm great though. Where as in a partnership you’re more tied to the people for the life of the venture. (Assuming you’re dealing with principals)

  3. Pingback: Why, What, and How To Communicate With Your Investors

  4. Kevin Yeats

    I agree with this blog.

    Keep in mind that this type of writing (communication) is NOT a mystery novel. Don’t make the reader (the investor) dig for the important point of the communication. Tell him or her right up front the reason for the communication.

    Obviously the investor will LOVE hearing good news like this headline

    “Ahead of schedule on Y-T-D profits”

    But if you have to give bad news … also give a solution (or 2 or 3).

    “The tenant that usually gives the most trouble has not paid this month’s rent (as of the 5th). I will post a three day pay-or-quit notice at 7 AM tomorrow and will contact our eviction attorney. I will keep you apprised of the status.”

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