Whether you’re like I was when I started out raising capital, finding an investor to lend on one deal, or you’re managing a fund that does many deals, it’s important to build a strong and lasting relationship with your investor(s). Of course, when it comes to improving their experience, getting feedback from your investors is key. If you’re newer to raising capital, you can also consider your own experiences as investor, including what you may have liked or didn’t like about the experience.
For me, after being a fund manager for over 15 years (and investing for over 25), one of the things I’ve learned is the importance of not only knowing who my ideal customer is, but also knowing how best to serve their needs. Primarily, this consists of helping them feel more comfortable and confident with their investments, including the ones they have with me. As you might suspect, this can be easier said than done.
Here are a few tips and ideas I’ve come across over the years.
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Often, it comes down to the type and frequency of communication you have with your investors. There may not be a magic number that works for everyone, but it’s certainly something worth tracking. For example, we know how many communications a potential investor will receive on average before investing with us.
How professional does your organization appear to the public, and how fast do you respond to their needs? It usually makes sense to have a good online presence and to frequent the places your investors hang out, whether that’s through social media or even live events.
Related: How I Find Private Money Lenders to 100% Fund My Deals (& How You Can, Too)
Of course, it makes sense to stay in touch with your best clients on a frequent enough basis without annoying or spamming them. After all, retaining clients is just as important as finding new ones. Maybe this is through providing monthly statements, quarterly updates, yearly financials, or investor meet and greets. Or maybe you could send photos or videos of the status of the rehab projects they’re investing in. Either way, there are many great opportunities to show transparency and to build trust.
Another strategy is to find ways to provide more value to your investors. For example, we sit on the board of an accredited investor group, Strategic Investor Alliance, which not only creates a venue to network but also provides information and education for the investors. At these meetings, other alternative investment options are discussed, as well as tax saving strategies. We even go into various types of planning, including retirement, estate, legacy, and even family governance.
Protect their capital.
Whether you’re in the business of real estate notes or hard real estate, another area to consider is how well you protect your investors’ interests, especially when it comes to the actual paperwork. Do you go the extra mile to safeguard your investors’ capital?
I’ve seen some folks think that they’re slick by having the paperwork favor themselves over the investor, only for that to be uncovered by the investor and their counsel at a later date. I’m not sure how something like that would ever help to build a strong, long-term partnership with your investors. And so, I think it’s best to do the opposite, where you can show the investor(s) how you intend to protect them and their capital.
For example, instead of trying to borrow more money that the deal’s equity can cover, maybe you could cross collateralize and have two properties back the loan.
This can also be demonstrated in other ways, especially through corporate governance. Are you demonstrating that you have a group of professionals on your team? Maybe you have an investment committee approve all investments made. Or if you’re smaller, maybe you have a clear, concise business plan and model that you can demonstrate.
Also, are your contracts tight with everyone else you work with, including your attorneys, vendors, and contractors?
Another example of how you could ease your investors’ fears is by showing them that an adequate amount of renovation was completed before you request the next draw. Of course, it also looks good if you’re on time and sticking to the schedule and scope of work initially laid out.
It really comes down to do you do what you say you’re going to do? And do you convey the proper messaging to your investors?
When it comes to raising capital, having a long and solid track record is a game changer, but it’s still something you need to maintain. Whether you’re new, without a long track record, or you’re very experienced, the follow through is equally as important.
For example, many investors start out small, and everything is going great. Then, they start to grow too fast, and you can see the wheels starting to fall off their little real estate investing machine.
Now, they could start sharing all of their problems online, asking for advice from their Facebook friends, but I’m not sure how professional that is.
Another option is to find ways to creatively solve those problems, maybe by building their team or developing systems and processes to support their growth while staying in frequent communication with their investors.
It’s much easier to look like a big shot when everything is going well, but it’s what you do when the chips are down that really counts. As Warren Buffet says, “You’ll see who’s swimming naked when the tide goes out.”
So, let me ask you on BP how do you protect your real estate investors’ money?
Let me know your thoughts with a comment.