October 10, 2023
By: Travis Watts, Director of Investor Education
Learn How to Maximize Your Success by Understanding Investor Preferences
After speaking with thousands of investors throughout the years, I put together a “Top 10” list of what investors really want and how they choose the best operators. While this list is not all-inclusive, it highlights the most important categories that I found that investors often ask about. Whether you’re a curious Limited Partner (LP) wanting to explore real estate private investments or a visionary General Partner (GP) aiming to attract investors, these ten points can act as your compass:
- Reliable Track Record: Investors like working with experienced and trustworthy people who have successfully managed similar projects before. Being able to show that you’ve delivered good results and managed risks well is crucial to attracting investors.
- Honest Communication: Being open and honest in your communication is important. When you keep investors in the loop, and share both good and bad news, it builds trust.
- Good Returns with Balanced Risk: Smart investors look for investments that provide healthy returns when compared to the level of risk. Making sure that potential profit balances with risk is key. The ability to showcase how your underwriting and projections are conservative can go a long way with investors.
- Clear Investment Plan: Investors want to understand your plan. They need to know the type of property, where it is, what you’ll do with it, and how you’ll make money from it. A clear and simple plan shows you’ve thought things through.
- Doing Your Homework: Investors want to know you’ve done your research. They like to see that you know the market and have done your due diligence. A well-designed investment overview or “slide deck” can showcase these findings.
- Shared Goals: If a GP is investing their own money alongside investors, it shows everyone is in this together. This makes investors feel more confident and connected. This is a unique element to private placement investing that can boost investor confidence.
- Preparing for Problems: Investors feel better when they know you’ve thought about what could go wrong. What is your plan to handle the unknown? Aside from outlining the risks in the PPM (private placement memorandum) how else can you explain and showcase your plan for risks?
- Clear Exit Plan: Having a well-thought-out plan for how to make money and give investors their money back reassures them. You can use past examples or explain how and when you plan to exit the deal.
- Transparent Fees: Investors want to know about fees. Being clear about what fees there are and how they affect returns helps build trust. While this does not need to be front and center on the investment overview, it should be easily explained and accessible to investors. To simplify it for investors, you may choose to show “net” projected returns vs “gross” returns.
- Playing by the Rules: Investors want to make sure you’re doing things legally. Operating within the law and following regulations is important to all investors. What compliance measures have been taken? Some operators may have an in-house compliance staff, while others may use reputable law and accounting firms to oversee their business. It is important that investors know these steps have been taken.
Providing What Investors Want
At the end of the day, investors are looking to work with people who are professional, honest, know what they’re doing, and have a clear plan for making money while managing risks. This is what we do at Ashcroft Capital, and it’s why I have been an investor for years. I joined the team in 2019 to support this mission, and to help educate investors like yourself. Want to learn more? We have created hundreds of videos to further your education and make commercial real estate investing simple.