Knowing how to attract investors to your real estate business is a critical skillset that you have to possess or develop if you’re planning to syndicate commercial real estate investments. Investors will be the lifeline of your syndication business because even if you are investing your own money or leveraging friends’ and family’s funds, you’ll soon be tapped out and will need to use “other people’s money” for your subsequent deals. But you don’t have to wait until you have a deal under contract to start talking to investors, right? It is wise to build your investor pool now so that when an investment opportunity comes, you will not be pushed for time chasing down potential investors to raise that capital on time.
So, how do you approach and talk to potential investors so that they will invest with you? This is a topic of discussion in my podcast episode featuring Keeley Hubbard, expert sales coach for business owners and professionals, and multifamily syndicator and investor. According to Keeley, effective capital raising needs effective sales skills. “If you’re not good at sales, raising capital from investors is going to be very challenging,” she says. I’d like to share valuable insights from our discussion to help you with conversations with potential investors. Communication can be difficult, especially for novice syndicators, but Keeley’s insights will give you a better foundation to get started in growing your investor list. If you want to listen to the full episode, click here.
Getting past the bad rap in sales
Traditional sales processes, strategies, and techniques make most people feel uncomfortable. Overeager salespersons pushing their products unrelentingly causes pressure and tension to buyers and drives them away. The same is true in real estate. Even if your investment offering is an ideal deal for you, once you employ sales tricks and gimmicks, overshare product information or share it too soon, or exert pressure to commit, you’ll scare investors off.
“I realized there’s got to be a better way, and so I set out on this journey to figure out effective sales processes that you can be proud of, make great money and feel authentic to who I am, and actually serve my investors and the people that I work with,” says Keeley.
Here are Keeley’s strategies to have authentic sales conversations that attract new investors to your syndication business.
#1 Don’t “product vomit”
Most of us have been trained to believe that if we know and believe in our product or service – in our case our investment offerings – with passion, then we will be able to influence people to also believe in our product and persuade them to buy into it. This is not always true, says Keeley. “The problem is when you’re really excited, you go into an overenthusiastic speech that just spills everything you got to a prospective investor. I call it product vomit,” she explains.
While you may be genuine in your approach and true to your commitment to serve your clients, it can’t be assumed that you should “product vomit” to every potential investor that you talk to. In most cases, you should hold that information in and put all of your focus on your investor first.
#2 Say NO to sales malpractice
“Don’t commit sales malpractice where you prescribe a solution before you ever diagnose somebody’s problem and truly understand what they’re looking for,” advises Keeley. Just like in medical practice, it takes a thorough examination of the investors’ current situation before you arrive at a diagnosis and make a prescription that the individual is fit for a certain type of investment. Multifamily may make sense for some, but not all, investors that you talk to.
So, it’s crucial to understand the individual’s existing investments and his or her thoughts about them, as well as the goals that they want to achieve in life before you can figure out if you should even begin to talk about what multifamily is and extend the invitation to join in your investment business.
#3 Break down investor’s walls
As consumers, as buyers, or as investors, we all follow a process before making decisions. However, it has become typical sales behavior to push products to clients at the first instance without regard to the decision maker’s thought process and priorities. “Investors don’t like to be rushed. This pushes them to put their walls up to avoid the pressure. People love to buy things but they hate being sold, and so they build a wall to block you out,” explains Keeley.
Your goal now is to get their walls down by releasing all the sales pressure and tension at the very beginning of the conversation. Show awareness of a person’s decision-making process and understanding of his or her challenges, responsibilities, and priorities. If you can get them to laugh, it automatically releases some tension. As you go along, you’ll observe the walls going down because you have erased their biggest fear – you telling them “I’ve only got two spots left for this investment” to pressure them into investing.
Here are some suggested lines for conversation starters to help break down the walls:
- “(Name), I appreciate the time you took to sit down with me today and am looking forward to our conversation. But upfront, I want to let you know that what I do is not a great fit for everyone.”
- “We may get 15 minutes into our conversation, then you realize, “This doesn’t fit right for my goals or my investments” or maybe you don’t like me, or you don’t like my hair (that gets the laugh) or you don’t want to invest in real estate, will you tell me upfront about your thoughts? That is completely fine by me.”
- “The flip side of that is if we talk about your goals and I decide that I can’t help you, that what I do isn’t the right fit, are you going to be okay if I tell you that?
#4 Don’t aim to be perfect, just be yourself
“When we sit down with an investor, we pressure ourselves to be perfect – perfectly scripted presentation, perfect suit with the briefcase and dressed to the nines and polished – a typical salesperson. People generally don’t like that. They want ‘human’. They want you to just be real, be who you are,” advises Keeley.
You can make mistakes and still be successful in engaging potential investors. When faced with a tough question, you can humbly admit that you don’t know the answer as long as you promise to come up with a response at the soonest possible time. Investors want to see that you’re a real person and somebody that they could identify with and do business with. You earn people’s trust by being honest with them and with yourself.
#5 Identify pain points
Pain points are the emotionally compelling reasons that motivate a person to make a decision: what they hope to accomplish, what they’re looking for, what their fears are. It can give more insight into what a person’s true investment needs are.
Keeley says that the easiest way to figure out the pain points of a potential investor is to give examples of other investors that you work with. You say, “Some investors that I work with, their biggest challenge or frustration is they’re not getting the returns that they want in their other investments. A lot of them are in the stock market and they’re tired of riding the market roller coaster and want more stability, more cash flow. And they’re sick of paying 40% in taxes. I don’t suppose any of these things have been challenges for you?”
Reactions to the above example will give you jump-off points from which to dive deeper into a discussion to gain a better understanding of a potential investor’s qualifications and readiness.
Here are a few more sample questions to ask potential investors to identify pain points:
- What do you like about your current investment portfolio?
As syndicators, don’t be quick to dismiss stock portfolios. Avoid, ”Let me tell you why you shouldn’t be investing there and how amazing multifamily is.” That triggers walls to go up. Instead, find out what they like about it (returns, liquidity, dividends, etc.). Would there be a reason to change and invest in multifamily, and is it going to be the right fit?
- If you could change one thing about your current investment portfolio, what would it be?
This is a better springboard question than “What do you hate about the stock market?” The prospective investor may be a serial stock investor, so avoid stepping on those potential landmine questions. Focus instead on current issues – what’s working, what’s not working, and identify the gaps between where they are now and where they want to be in their investing goals.
- From a priority standpoint, how important is it to fix the gaps in your investment goals? On a scale of 1 to 10, 1 being “I’ll probably be dealing with this a year from now” and 10 being “I’ve got to do something right away,” where are you at?
The question allows you to evaluate if there’s an urgency to make an investing decision. It is wise to get an answer to this question first before spending time and effort to pursue a deeper discussion about your syndication business model.
“Is there a compelling reason? Is there a pain they’re experiencing right now (like fear of losing money), or is there a fear of pain in the future (they’re not going to make it to retirement)? Figure that out so you don’t push them based on the urgency of your deal. Otherwise, there is no urgency for them to move forward,” says Keeley.
Once you’ve passed the initial hurdles of investor communication and identified an investor that has the urgency to move forward, it’s time to let him or her know about multifamily syndication and the typical processes involved throughout the whole project life. In no time, you will start to grow your list of investors.
Building a robust real estate investor group is not just about adding names to your growing list. It is a continuous process that needs constant nurturing and care to strengthen the relationships formed. If you do it right, your investors will stay with you for years to come – investing and reinvesting in your deals.
Interested in multifamily investing? Life Bridge Capital is here to guide you. If you’re interested, we’ll be happy to talk to you. You can email [email protected] and reach out, and we’ll schedule a call.