Our investment partners are the core of our business. They provide capital to purchase a real estate asset and trust Worcester Investments to manage the asset transparently, effectively and with integrity. In order to maintain positive and mutually profitable relationships, we must carefully manage these relationships and the properties in which our partners invest. Here are five tips that an asset manager or syndicator should keep in mind when developing a relationship with an investor. These tips should also be helpful to a passive investor who is seeking an asset manager or deal maker.
In unison with our partner relationships, being very selective and buying only the best marketed and off-market deals in our specific area of expertise is the foundation of Worcester Investments’ success. To be a great buyer, you have to look at tons of deals and you have to know your market and the players within it very well. With that foundation, it goes without saying that you should only present strong deals to your investors. However, there are different types of strong deals and you should take the time to discover what types of deals your investors desire to purchase. The two types of deals we purchase are properties that have deferred maintenance, history of mismanagement or low occupancy, but are located in a strong submarket. These properties generally have the most upside, but the investor has to be comfortable with the pre-stabilization period where they will be receiving minimal cash flow. The other type is a more stabilized asset that should perform well from day one. As you get to know your investors more extensively, you will develop an understanding of their investing philosophies and which types of deals they want to purchase. Take the time to understand what they are looking for and do not try to push something on investors if it does not fit their criteria. Ask questions, listen and take notes. Your goal is to help them, not sell them. Furthermore, do not present deals you don’t understand very well, you don’t at least have an accepted LOI (Letter of Intent) on, and, most importantly, that you don’t believe in. If the investors sense any confusion or reluctance, you will lose credibility and respect.
The psychological power of expectations is very significant when investing. Affluent individuals have many options, many people like you, in which to invest their capital, many of which project and sometimes even guarantee exorbitant returns. Most investors will more likely become a repeat investor and feel better about a 13% return when you projected a 10% return as opposed to a 14% return when they were guaranteed a 20% return. It shows integrity and credibility when you build in a buffer for unforeseen costs and periods of lower income. Do not project a home run. If a property is a home run from an operational standpoint (in most of our Kansas City submarkets, that would mean a 95%+ economic occupancy and consistent rent raises), your investors’ returns should significantly exceed your projections. We internally expect, and have fortunately been able achieve on average, the property to provide a 125%+ of the investors’ projected return.
You’re not going to know every investor extremely well on a personal level, especially if you have a large investor group, but you should make a point to learn about the investors’ backgrounds, goals and why they’re investing. Understanding their investing philosophies and desires is very helpful in effective partnering. They may invest with you as an educational resource to hone their active investing knowledge and skills. They may be a sophisticated investor with a real estate background who have strong opinions on how an investment should work. They may be completely passive. We appreciate each investor type, as they each provide a unique value, but it is important to know whom you are working with, as it will help you tailor your communication to provide more value to your investors. Often our investors are involved in other smaller real estate investments outside of their Worcester Investments partnerships. By learning about the projects they’re involved with, we can be a knowledge and referral resource for them and vice versa.
Our investors should feel like they can come to us for anything. It is important to be approachable and available. Return every investor call or email within 24 hours, ideally within a couple hours. Consistent communication is key. We send out monthly reports on each investment to its respective investors that includes reports and a narrative on the property’s status. If you don’t communicate with your investors regularly, they may worry that there are issues at the property or that it is performing poorly. If an investment is performing below expectations, be transparent and communicate sooner rather than later. Most investors understand that there will be some bumps in the road. You need to be able to demonstrate that you are addressing any issues effectively and expediently. Experienced investors understand that it is easy to be ethical and transparent when a deal is a home run. They will be watching closely to see how you handle that first hiccup. A bump in the road is an opportunity to show how you handle adversity and how quickly you can solve the problem. The worse a property is performing the more proactive and detailed you need to be in your communication.
You can only build a proven track record if you are selective on the deals you purchase and you project conservatively. In order to develop an investor group, you have to earn credibility. Your track record is your most powerful marketing tool. A savvy investor cares more about what you’ve already done than what you say you’re going to do. If you haven’t developed a track record yet, you need to show people that you are hungry, resilient and have integrity. You need to demonstrate that what you lack in experience, you make up for in determination, hard work and ambition. You will have to point to areas in life where you have been successful. Your early investors will likely invest with you because they know you well, trust you and believe in your ability. My brothers and I were all under 25 years old without real estate backgrounds when we started Worcester Investments. We were successful in basketball on a very local level, but we used that success, insignificant as it may seem, to demonstrate our character and work ethic.
You can also establish credibility with a solid website and marketing materials. I can’t count the number of introductory meetings I have had where the individual sitting across from me had visited our website and formed their first impression of me before our meeting. An informative, active website shows that you are committed. It should enable a site visitor to get to know you quickly. We also highly recommend getting to know people within your target market and pursuing mentor relationships. Network and be involved in your community; most sizable cities have real estate investor groups and other business networking groups that are great for building mutually beneficial relationships. Remember, the foundation of building a strong track record is your integrity in all situations.