Pitching to Investors v3 FINAL

Investors Investing in Real Estate. And I have a lot of thoughts on this, and it may feel like more of a rant because this was something I was very naive. I’ve made lots of mistakes about. Let me share with you. Let me kind of explain to you what I mean. Welcome everybody to Self-Storage Income, and please like and subscribe because it’s the currency of YouTube. You gotta help me out and appease the YouTube gods. It’s important for any operator to know and understand, investors are your partners. They are not a bank. They should not be treated as a bank. They’re betting on you, right? You need to make sure that you show the respect and communicate appropriately with them. Upfront, structure of the deal, right? And then following communications after that. There’s two sides when working with investors, okay? The first side is the actual deal structure. The second side is the communication of the deal. For a large extent, friends, families, people that are close to you, it’s a lot easier to have a conversation about the value proposition within that asset. Now, when you need to go wider and you need to get more investors because you gotta raise more money when you’re dealing with funds, right? This becomes very different. Now the communication is much more predicated on the offering, the OM, what you’re sending out, but principally, really on the deal structure. I had an investor that came to me and he said, hey, I went with this other fund and I wanted to give you a little feedback on why I went with this other fund, not the deal that you were offering. And he said, first of all, on this project, we didn’t offer a preferred return. A preferred return means the money comes in, the investors get a preferred return before the split happens to the GP, the sponsors of the deal, or the limited partners. We have general partners and limited partners, right? We had a split that was 30% general partners, okay? 70% limited partners. Now, after a certain target that was hit, that changed over. And so he said, AJ, this one offered a preferred return and didn’t offer an aggressive split. It was a 50-50 split. And I was like, this is really good feedback. I really appreciate this. And so he said, what kind of return are you getting on that deal? 10 to 12%. And then I asked, do you know what return that we were giving on that property? And he’s like, you know, I don’t really remember. And the return on that individual property was over 20%, even with not a preferred return and not giving or having a more aggressive split. Well, I was delivering twice the return. When I mentioned this, I could see it. He was kind of like, what? When he looked at it, he looked at the overall deal structure. Now, this is important for two reasons. First of all, this doesn’t mean I was right. It doesn’t mean he was wrong at all. I learned from this. And I realized when we went back and we started talking with investors, the first thing is perception is reality. And when investors, particularly accredited investors, are going out there and they’re trying to do direct investments and deals, they are looking at the offering. So the offering sheet to them is much more of the investment. They’re looking at lots of deals and he looked at the basics, percentages, what the flip is, equity splits, and preferred returns. So he’s looking at the actual structure of the deal, not the deal itself. I’d never looked at deals like that. I’d never, I didn’t think anybody did. And once again, it’s not that it was wrong. I was selling the actual deal, not the structure. That was a change we made because of this conversation. We changed some things so that our structure was more competitive in what they looked at that they were buying. Now, that actually led to us getting more in fees and some of the investors sometimes getting lower returns, which doesn’t make sense to me. It’s important to understand what that investor is looking for. And what are you comparing my investment to? They have options, they have offers. You need to be able to communicate that value to them in a way that they understand. I was not doing that. It was my problem. We changed the structure and we found deals that could still generate incredible, amazing returns. We showed the structure that fit what they were comparing things to. And then we explained the value proposition in the deal because what we found was they were just stopping at that and going another way. They never even looked into our deal. They never even saw this huge upside potential, how we were getting all the money out in three years plus this big return, and they would stay in the money. They didn’t look at it, right? This was our problem, not theirs, it’s ours. So we changed things around in how we present. Now, I’m talking a lot about more major syndicating, things like that. When you’re working with individual investors, friends, families, it’s important that you understand a few things. First of all, when I say the structure of the deal, now I’m talking about who does what and how. When you do a fund or a syndication, you have sponsors and limited partners, right? But if you’re not going that route and you’re not doing a full syndication, but you’re still trying to get investors, that framework might be different. It may just be an LLC and you’re all partners in the deal. So if you’re all partners in the deal, within the deal, you need to really structure who has what say. So do the investors have say? Do they not? Who’s operating? Who’s managing it? Because a lot of us focus on the deal. Then when it goes to give investors, they want to focus on the structure and everything else. And this may be a really important piece to you that may make or break that deal. If you’re trying to bring in four partners, are you giving equal say to those partners? Or are you giving any say to those partners? I don’t give any say to my people that come in and invest with me that are limited partners. The reason being is I have to protect the investors from other investors. I don’t want one investor to have say or be able to screw up a good deal for the other ones. You have to understand who’s taking risk, who’s signing on the debt, what does that mean, and what authority is given to those people. If I’m the only one signing on the debt, I will not allow anyone else to have any say on the debt. Now, if I have a partner and they’re on the debt too, well, they need to obviously have say in that agreement. When dealing with investors, you’re bringing them in, what is their roles? What are their responsibilities within this deal? What is the returns? How’s it split? You need to be able to communicate all of this with them. Focus on the two sections, the structure between investors, who gets to do what, LPs, sponsors, however that works, and then you need to communicate the value of the deal. But both of these things have to be communicated very, very well. You can do really good on one side, but then screw up on the other and not get the investors that you need. All right, the next part that you need to focus on and communicate with investors is the follow-up communication. That was another thing I was bad with with investors. We had these amazing deals that were gonna outperform any other asset class in the market, and everything to us was about the deal. We were operators, managers, owners, syndicators, right? And it was all about self-storage, self-storage nerds. And as long as I focused on the deal, everybody will be happy. It’s not true, because if I’m focusing on the deal but not communicating what I’m focusing on, they don’t know. So constant communication through operations and setting expectations. So I have an investor, Heather, love her to death. She’s wonderful. And she really helped me work through a lot of these issues where she said, you’re working on this asset, you’re getting a bunch of great returns, right? Everything’s going good. But if we don’t know about what’s happening and you have to pause distributions because there’s major capital expenditures and you wanna just make sure everything’s okay until you get all the bids in and everything, but we don’t know, people are going, what’s happening? Which is obvious, this seems obvious, right? But so many of these things with communications, with investors may not be. How you view your perceiving your communications may not be how they view it. So when you start with investors, you need to set up a framework in which communication shall be handled. What you’re gonna tell them, when you’re gonna tell them. Like Heather said, this is managing perception, right? Their perspective, what’s going on or what should happen. You gotta manage all of that. Make sure that it’s clear at first and then follow through. And then you’ll be able to have happy investors and a good project. Although investors are your partners and although they’re great and you deal everything, not all investors are good. This is something you have to understand, especially if you’re giving any control at all within the asset. You have to be careful. I see more deals and more things go under because of partnerships than anything else. And when investors come into a deal, they wanna make sure they know who’s in charge, what will happen if something goes wrong, who’s being held accountable. You need to set it up so they have that. Communicating with investors as the deal moves on, sell all that, we’ve kind of covered this. But it’s also about communicating with investors before they come. What’s your strategy? Who are you? What’s the value proposition that you have? How do you do that? Well, I’m doing it now, right? I want everyone to come invest with me. So I’m telling everybody, here’s the structures, here’s how I do things, here’s mistakes that I’ve made, here’s what I’ve learned. I wanna be transparent, I wanna be honest and I wanna make sure that they know that the good, the bad or whatever, I’m gonna talk about it and I’m gonna tell it, I have nothing to hide, right? So I’m out talking on YouTube, I use my podcast, my Instagram to tell people, I have this great investment strategy, come invest with me, right? This is what you need to do. You need to frame your strategy, who you are and what you’re doing. Everybody that listens to me or knows me, they’ve read my book, everything, they know my strategy, they know I’m the self-storage guy and what I’m doing. That allows me to attract investors and they already know what they’re getting into without me having to convince them. I don’t go meet them and they say, hi, I’m an investor, you set up this meeting, what do you invest in? Why are you any good? That’s not how I find investors. Branding yourself, your strategy and what you do is very, very important, especially with investors. And if you’re gonna go outside of that, make sure you communicate it with them cause you don’t want them to be surprised. All right, everybody, I hope this was helpful. Please like, subscribe, comment below. Let me know as an investor and as people bringing on investors, let me know what went wrong. I’m really interested to see. Thanks everybody.