Once you’ve found a property and have a vision for how you could add value to it, you’ll need to present your case to potential investors. If you’re working with a partner for this step, you’ll both be reaching out to a network that likely consists of family and friends. Ideally, you’ll have started sharing your investment activity with them already and have an idea of what you’ll need in terms of funding.
The capital stack for a real estate investment typically has layers of equity and debt, which I’ve discussed previously. In this piece, we’ll look at how to build an investor deck to present your project to accredited investors (learn more about accredited investors in my previous article on crowdfunding). This commonly consists of a Power Point presentation that outlines the main objectives and return for investors.
Keep in mind that you’ll also want to be working with an attorney at this point to make sure you’re abiding by the SEC guidelines, which are by nature complex and will require legal counsel. (Reaching out to a mortgage broker, which I covered previously, is also essential for evaluating your financing options.)
Present the Business Plan
What is the opportunity for investors? What type of return can they expect? What sets your concept apart from others, and why should they opt in? The business plan should answer all these questions and share additional details about the project.
Your title slide may include a picture of the property and information about its location and cost. Following this, an executive summary can be used to share an overview of the property, including key figures and selling points. The next slides can proceed to share your plans to improve the property, which might involve renovations and repositioning it in the market. You’ll want to present timelines and costs for the project, along with additional pictures.
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As you put together the presentation, remember that investors are typically busy and may only spend a few minutes glancing at the slides. Given this, make sure the facts are presented as clearly and concisely as possible. If you share some of the risks and your plans to mitigate them, it shows investors that you have carried out research and are taking measures to avoid pitfalls.
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Show the Right Comps
Help investors see that you have a grasp on the market by studying properties that have sold in the past. There are several sales comps that can be especially applicable. These include price per square foot, which can be found by taking the price of the property and dividing it by the square footage. For multifamily assets, you can calculate the price per unit by taking the sales price and dividing it by the number of units. The cap rate can be found by dividing the net operating income of the property by its sales price. Also be aware of the conditions of the property at the time of sale, such as if it needed substantial renovations or if it was ready for tenants.
As you review sales comps, keep in mind that they serve as a rearview mirror. In commercial real estate, the sales that are reported often reflect a transaction that was negotiated six months prior. The buyer and seller may first negotiate the contract, and that can take several weeks. After signing that agreement, 60 or 90 days may go by before closing. A sale could be reported a month after that.
Include the Sponsor’s Track Record
Here is your chance to share information about previous transactions and investments. If you’re new to investing and are working with an experienced partner, you could highlight some of their accomplishments. You’ll want to inform investors about the deal team, and who will be managing the day-to-day operations of the property.
If you are personally investing in the deal, this can help assure investors of your commitment. When I interviewed Wendy Berger, principal of WBS Equities, LLC, on my podcast “The Insider’s Edge to Real Estate Investing,” she shared how she contributes alongside her pool of investors for real estate deals. She also keeps terms simple to make returns easy for everyone involved. You might also consider following up with a phone call after you share the investor deck. Let investors know you’re open to answering their questions and discussing the deal with them further.
Make the Case for the Location
This is your opportunity to share important statistics about the market and submarket. Help investors understand if the population is growing, what type of employment is in the area, which industries operate there, and why you chose the location. Also include plans for marketing and attracting tenants, along with any current leases or secured tenants.
Working with a leasing broker can help you get a sense of rent prices in the area, and in your investor deck you can present data to support your cash flow projections. Having a pulse of the neighborhood is essential, as you’ll want to assure investors that you understand the trends impacting the region.
In today’s market, amid interest rate and economic fluctuations, investors will likely be looking for credible, qualified sponsors and a well-researched business plan in an attractive location. Due to the challenging lending market, you may need to bring more equity to the table for a transaction. If you can present a solid case to investors, you could be on your way to raising the capital you need and building a long-term portfolio.