When you are trying to pitch potential investors a deal, you have 20 seconds to catch their imagination. In that 20 seconds, you need to address the investors’ “What’s in it for me” mentality. You need to talk to their reasons “why” they need the money. You need an “elevator speech”.
Here’s an example:
I have the perfect deal for someone with $75,000 in your IRA looking to earn 15% APR over the next 6 months. You can earn 15% APR on a sustained basis if you choose. You won’t need to keep reworking your IRA money anymore. All of our deals are validated by third party appraisals and third party rehab costs. The projects are run by a very experienced rehabber who has done 8 house rehabs on budget in the last 24 months. I have a flyer with all of the benefits on the table. I will be in the back of the room. My name is Lance. Come see me during the break.
Let’s break it down. This pitch is very specific:
“someone with $75,000 in your IRA looking to earn 15% APR over the next 6 months. You can earn 15% APR on a sustained basis if you choose.“ – You are giving them a choice on how they can earn their 15%.
“You won’t need to keep reworking your IRA money anymore.” – You are presuming that there is a problem.
“All of our deals are validated by third party appraisals and third party rehab costs.” – You don’t go into detail but you assure them that there is nothing to worry about. You have the bases covered.
“The projects are run by a very experienced rehabber” – You are selling people the experience or your team. People feel secure with experience.
“who has done 8 house rehabs on budget in the last 24 months.” – this solidifies your statement of experience.
“I have a flyer with all of the benefits on the table. I will be in the back of the room. My name is Lance. Come see me during the break.” – You’re not waiting for a phone call; you are ready to talk right now.
Be sure that your elevator speech addresses at least some of the benefits of control, low risk and high return. If you get their attention, they will come talk to you and then you can highlight the features of your deal. The key is to grab their attention. Once you have accomplished that, you can go over the particulars of the deal.
You’ve created your investment product to sell. But if you can’t market your product effectively, you won’t have any sales and, in this case, you won’t raise any private money. In order to market your product successfully, you must first recognize that your private investors are only interested in themselves. This is where the “What’s In It For Me” technique comes into play.
What’s In It For Me
This technique goes by the idea that there are two things involved in marketing any product. Those two things are features and benefits.
Features: These are the things that make the benefits true. They allow you to produce the benefits. The features contribute to the benefits.
Benefits: The benefits are in the Four-Part Formula and include control, low risk and high return.
For example, let’s look at the benefit of Control. One of the features of control is having a recorded first lien. Another feature is a controlled release of monies. Yet another one is the ability to intercede. These are all features of control and that’s what the investor is interested in. Telling them how you are going to give them control helps convince them that they actually will have control. The way you promote control is by demonstrating it through its features.
The benefit of Low Risk is the fact that your deal is secured by real estate. The feature you offer to your investor is the experience of your team. This contributes to the feeling of low risk. You can further this security by bringing in extra collateral of a blanket mortgage.
To demonstrate the benefit of High Return, you will need to show your investor that the return they will receive from the deal is higher than what they indicate to be a good return on their Profile Sheet. Find that benchmark of what they consider to be a good return and then either match it or beat it.
You need to start with the reason why they need the money. The more you can speak to the potential investor’s reason why, the more money you can raise and the less return you have to pay. Once you determine their reason why and then explain to them how you will enable them to meet their reason why, you can then explain all of the benefits to them.
Only after you address the benefits of control, low risk, and high return do you then present the features to prove how you are going to deliver those benefits. So your process is simple: start with the reason why, discuss benefits and then the features.
You need to be sure that you don’t spend the bulk of your time promoting features and neglecting the promotion of the benefits. Just remember to always have the investor’s perspective of “What’s in it for me” at the forefront of your thoughts and you will be able to address their questions and concerns and successfully market your product.
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On the importance of knowing the ratios of expenses to income:
Quote from Lance Edwards’ Multi-Family Success LIVE Student:
“It makes you much more aware when you try to communicate with the brokers. At least you’re on the top of your game.“
You need to realize that when you are out raising money you are creating an investment product. Keeping that in mind, there are some rules that you have to adhere to. As you become more successful at closing deals and raising bigger monies, you come closer to limits set by the Securities and Exchange Commission.
You will need to consult with a securities attorney to get all your questions regarding this area answered but there are some things that are definite and others that are not.
It’s always smart to play well within “bounds” to avoid being called to task by the SEC.
Each state has its own regulations when dealing with its investors. Generally speaking, it is easier if all of your investors are located in one state. When you start crossing state boundaries, then you get into a grey area.
There are, however, key words to remember when you are getting into “out of bounds”:
General Soliciting: An example of this would be to run a radio ad in Los Angeles soliciting people to become investors in apartment projects. These would be people you don’t know, on a broad scale.
Where you get into trouble with this is when something goes wrong on a project and an investor files a complaint. If you had 10 disgruntled investors and they file a securities fraud complaint, then you have a problem.
This is where referrals are extremely important. Only work with people that you know or people that know you through a mutual contact. This way, you are staying within a defined group. You are working with people that you have a relationship with.
The biggest concern is when your investors are not active participants. It is more like a security when they are passive participants and don’t have a specific role.
Defined group: This group includes family, friends, colleagues, charity contacts, people from church, real estate club contacts, existing relationships, and referrals. If you really want to raise big money, join a charity and become a part of their fundraising drive and get in contact with the major contributors.
By becoming a part of a charity, you have created relationships. You are giving back and it’s a way to have access to private monies with a defined group of people who are most likely accredited.
The main thing to be aware of is that there are rules. Some of these rules fall under a grey area so it is always smart to stay within the defined areas. When in doubt, consult an attorney.
This is my first time in using postcards to promote our Multifamily Success LIVE
event. What do you think?
I’m pleased with it except for the fact that the deadline date is wrong. It should have
been January 16th. Nevertheless, they are on their way now. And even if you don’t
receive one I want you to benefit from my printer’s mistake.
Save $500 if you register by this Friday, January 23rd.
For more information, please visit: http://www.ApartmentWealthMachine.com/live.htm
Or call my Training Coordinator, Undreese Gulley, at 832-882-1039.
When you are trying to figure out how to get your multifamily deals done, there are techniques that you can use to do so. Any one of these techniques can be used individually or in a combination. They can be applied by rehabbers, wholesalers or buy and hold entrepreneurs.
1. First Mortgage: you go to a lender to get a first mortgage.
2. First Mortgage Paper Cash Out: you can get a seller to carry back a first mortgage and if he wants cash instead of payments, then you can sell the note. You can do this for private investors as well. A seller might want to be cashed out.
3. Second Mortgage: you can get a seller to carry back a second mortgage or you can get someone else to finance the second mortgage for you.
4. Second Mortgage Paper Cash Out: the seller is carrying back the second mortgage and there are people who will buy the second. You are simply keeping the first in place. There will be a heavier discount but there are people who will buy second lien positions and you can cash out the seller that way.
5. Blanket Mortgage: you’re getting a seller to carry back a second but they want extra collateral. You allow their mortgage to blanket over another piece of property that you own.
6. Blanket Over Other Collateral: you want the seller to carry back the second mortgage but the seller wants more collateral. So, say you have a boat or a car or something else to offer as collateral. You can offer that piece of collateral and make that part of the lien.
7. Deferred Down Payment: This is a way to get an interest free loan. You buy the property and either assume that the seller has first mortgage or you get a new first mortgage. You then give a down payment 12 months from now. This is another way of rephrasing a second. Calling this a Deferred Down Payment implies that there is no interest being charged.
8. Barter: trading something for something. This is getting in the creative arena. Let’s say you have talent as a bookkeeper and you want to buy the property, you could barter your services against the down payment on that property. You could provide 12 months of bookkeeping services and if you need the seller to carry back $20,000, then you provide $25,000 of bookkeeping services. You then have the seller carry back a note on the property.
9. Barter Assets: instead of putting a mortgage, for example, on your boat, you give it to the seller as consideration for a down payment on the property.
10. Turn Around Joint Venture: You could approach landlords of distressed properties that may be out of state. The landlords are amenable to terms that you can agree on so you agree to a joint venture. You come in and turn the property around and they give you half ownership in the equity that they have. This is a great way to get in a deal with no cash.
Your ability to put together multifamily deals is only limited by your imagination. Think creatively. There are plenty of other options available to you.
Quote from Lance Edwards’ Multifamily Success LIVE Student Jim Craig:
“The closer I get to a solid deal the more money that seems to appear from odd places. People are willing to give you a million dollars, two million dollars. So it takes the fear away.”
“I came to the Lance Edwards’ course knowing that I could pick up on the knowledge but the mindset was the element of the course that I felt was most important for me and it has not let me down. I feel like I’ve been helped a great deal in the mindset.”
“Also the teaching of the course went at a pace everyone could keep up with and comprehend without any strain or brain overload – so that was a good element.”
- Lance Edwards’ student testimonial
When putting together your real estate deals, you need to be sure that you know what documents may be necessary to complete the deal. You need to be mindful of these documents when structuring your deal. You need to have your own attorney when it comes time to actually prepare these documents, but here is an overview of basic documents.
Promissory Note: The promissory note includes the amount borrowed, the interest rate and the terms of payment. It’s basically a “note”. If you are doing the deal with your bank, then the bank will draw it up. Typically, the lender draws up the lending documents. If, however, you are dealing with private individuals, you will most likely need to draw it up for them unless they have their own documents. Once you have a template created for your promissory note, you can reuse it for other deals.
Deed of Trust: This is the security instrument. It’s another term for the mortgage. This defines the requirements of the borrower to keep the property in good condition, pay on time, and maintain insurance. These are all control and low risk attributes built into it. It shows the lender how he will be protected and it shows the borrower’s obligations. You want to emphasize that there will be a recorded formal document between you and the investor and it shows the investor’s rights if you don’t perform.
Assignment of Income and Receipts: If you are going to be holding a property for awhile, you are going to be assigning the income to the lender. You are going to assign them the rents and you are going to keep them as long as you keep paying your note. If you don’t perform, then the lender will take over the rents on the rental property. This is yet another protection for the lender. The lender will license back the right to you as long as you pay the monthly mortgage payment.
Lease Option: This document says that during the time of the lease, you have the right to buy the property.
Again, always consult with an attorney when drawing up any legally binding documents. These documents are just examples of ones possibly needed to complete a deal.
SECURE AND CONFIDENTIAL