February 17, 2021

JF2360: Best Practices For Converting More Passive Investors| Syndication School With Theo Hicks

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In today’s Syndication School episode, Theo Hicks shares some of the best practices used by Ted Greene, the Investor Relations Manager of Spartan Investment Group.

Theo shares several techniques that’ll help you build trust and form a relationship with potential passive investors. Many syndicators have been in the business for such a long time that it’s hard for them to put themselves into the shoes of someone who’s looking to become a limited partner for the very first time. And while numbers are of immense importance, one shouldn’t underestimate the power of human connection when sealing the deal.

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening!

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Theo Hicks: Hello Best Ever listeners, and welcome back to another edition of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks.

Each week we air a Syndication School episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes, we’ve given away some free documents. Free PDF how-to guides, free PowerPoint presentation templates, as well as Excel calculator templates. All of these free documents, as well as the previously released episodes, are on syndicationschool.com.

In this episode, we’re going to focus a little bit on investor relations. We’re going to talk about some of the best practices when you are taking a person who is interested in investing, but hasn’t invested before, or at least hasn’t invested with you, so a non-current investor, and then ultimately converting them into a current investor, someone who’s passively investing in your deals.

Most of the information that I talk about today is going to come from a conversation I had with the investor relations manager at Spartan Investment Group. His name is Ted Green. He essentially talks to investors all day, talks to potential investors, educating them on what they do, and obviously talking to current investors as well. So here are some tips, some things to think about.  A lot of these, at least when I heard them, they seemed counterintuitive… Because most people when they think of converting customers, they think of hot or hard sales techniques, whereas Ted’s approach is a lot more passive and educational, and less aggressive and constantly bombarding them and asking them to invest in deals.

It seems that when you’re dealing with smaller, cheaper widgets, or you’re selling knives, or pens, or something, then that more aggressive approach works, because you’re able to get to a larger audience. So if you have a 1% conversion rate, that’s okay because you’re talking to tens of thousands of people. Whereas when it comes to accredited investors, the conversion rate is going to be more important, because there are less people to talk to. It seems like that an aggressive approach might turn people off… So that’s why maybe these longer-term approaches work. Plus, acccredited investors are definitely more sophisticated as well and they can probably see straight through those hard sales techniques. But anyway, so these first best practices are how the conversation goes on the phone.

What you’re going to want to do, according to Ted, is you’ll start off by obviously doing the traditional standard, “Here’s who we are. Here’s what we do.” But the purpose of the call is to explain to the potential investor the benefits of investing in your apartment syndications. In Ted’s case, it’s self-storage facilities… But investing in apartment syndications compared to whatever else they’re currently investing in. So you give a background of your company, you ask them information on who they are, what they’re up to, what they’re investing in. You find out what they’re investing in – stocks, bonds, 401Ks – and then to have enough knowledge to explain to them why investing in say value-add apartments syndications is more advantageous than investing in the stock market, or investing in bonds, or focusing on a 401k only.

For value-add apartments syndications, obviously, the main selling point, so to speak, would be the consistent cash flow, as well as the forced appreciation. A lot of these stocks, and bonds, and 401 Ks, their value is driven by the market, natural market appreciation. Whereas for value-add syndications, we benefit from that, but if that doesn’t happen, then we also have the added benefits of the forced value through these renovations, through increasing the rents, doing operational improvements to optimize the expenses, to ultimately increase that net operating income over time… Which will not only result in a higher ongoing cash flow, but also results in growth in your actual investment, so you cash out in say five years. We then go off based off your historic track record, we project that you make this much of equity multiple at the exit…

As opposed to if we talk about the standard stock market returns or what happened at the recession, things like that. Ultimately, the goal of that conversation is to position why investing in your deals with your company is better than investing in whatever they’re investing in right now.

Now, something else that I asked Ted about was common objections that come up. He said that about half the people he talks to, sometimes even more, it’s their first time speaking with a syndicator, so you might get a lot of questions that might seem to you to be basic and simple. But to this person, since this is their first time looking at something like this, are not so basic and not so simple. The conversation is most likely not going to be super advanced, so you don’t need to know the specifics on securities law or to tell them different risk disclosures that are listed in the PPM or anything. But more simply, why should I invest in this, how does the process work, type of questions.

This is probably the most fascinating thing that he said. He said that when he talks to investors and they ask him how much they should be investing or how much their portfolio should be in passive real estate investment, and should they transition all their money from their investments into real estate, or half, or a smaller amount, and he always tells them to max out at 10% on their first deal. You don’t necessarily need to go all-in on your first deal. It’s not good to go all-in on your first deal. Make sure it’s something that you’re comfortable with, you like the returns, you understand it first before you slowly, in a ladder approach, increase your investment.

I’m sure when you talk to investors, they’re really going to appreciate that, because it’s a more softer technique. You’re not telling them “Oh, yes. You invest 50% or 100% of your retirement into my deal, and I promise you that I will double your money in five years.” Instead to make them more comfortable, say “You can do 2%, or 5%, or 10% of your investment money into this deal, make sure you like it, make sure you’re comfortable.”

Then what people usually do is they’ll do a ladder approach. They’ll do one deal, and then once they’re comfortable with that, they’ll do another deal, then maybe they’ll do up to five deals at once, and then they’ll wait until one deal sells, and then once that one deal sells, they’ll invest in other deals. Lots of different strategies, but overall, I recommend that you start off with a lower investment amount, and then once you get comfortable, gradually increase that over time.

And for some other common objections, we have a whole Syndication School series, I think. I think it’s like four episodes on the 50+… I can’t remember exactly how many objections there are. 51 objections that you’re going to get from passive investors, so make sure you check that out. If you search on joefairless.com, “Common Passive Investor Objections”, those episodes will come up. So obviously a lot more than that, but “How much I should invest?” is something I don’t think is on the list of questions I answered on that Syndication School episode.

And something else kind of on the same note is that if this might be the first time they’re talking to a syndicator, they’re not going to invest immediately. They might, but they also might not invest immediately. It might be a month, or six months, or a year, or multiple years. The idea of value-add apartment syndications and passive investing in real estate, if it’s new to them, it needs to germinate in their mind. The way to expedite that germination process and to speed up the growth of that apartment syndication tree in their mind is to have a good follow-up process.

One of the best things you can do – we always talk about the benefits of a thought leadership platform on this show – is that when we have a conversation with someone and they say it’s their first time talking to a syndicator, and they ask a bunch of questions about the asset management process or questions about what IRR means or what the returns are… Now, whatever questions they ask, kind of keep a mental list or literally type out the question that they have and at the very end of the conversation, mention that you have a podcast, or a YouTube channel, or a blog, where you do a deep dive into various apartment syndication topics. Based off of the conversation, say, “Hey, there’s actually these two or three playlists, or these two or three videos, these two or three blogs, or these two or three podcasts that will be very helpful based on the questions that you asked. I’m going to send you those links after the call.” That way, you just send off the information to them. Now they have access to your YouTube channel, your blog… And they probably did already, but this way you’re at least directing them to specifically what they should be viewing.

And then really, at that point, put the ball in their court. You don’t want to pressure them , again, because the goal is to not only invest you one time, but to invest with you continuously over the next five, 10, 20 years, however long you plan on doing this for. So put the ball in their court, and then whenever you get a deal, they’ll see it because, they’re on your list. Explain to them what the process is when they’re ready to commit, and maybe you can follow up with them — like, ask them if you can put them on the newsletter list that you have, or things like that.

But Ted really said that the ball is in their court. They don’t constantly call people on a weekly or monthly basis. They had that conversation with them, they direct them to more content, and then if the person is interested, they’ll invest, they want to learn more, they’ll reach out to learn more, or they’ll do a deep dive in that YouTube channel. If you don’t have a YouTube channel, or a podcast, or a blog, then obviously this is not going to work, and you should probably start making a thought leadership platform, or at the very least, maybe make a 10 page PDF FAQ that hits on all the commonly asked questions you get, that you can send to them afterward. Or have some sort of content that you can give to them so that they remember you by. So they don’t just talk to you, and then completely forget about you.

The reason why the YouTube channel is really good is that, well, depending on how much content you have, you might have 10, 20, 30 plus hours of content that they can listen to over a period of a couple of months. As you release new content, they’ll get notifications, and they will continuously have you at the top of their mind so that when they’re finally ready to take that jump into apartment syndications, you’re the first person that they think of.

So those are some tips, some best practices. Just to summarize what we talked about during the conversation, make sure you open up by talking about your company, what you focus on. Learning about what they are currently investing in, that way you can tee up the conversation to explain to them why investing in your deals is more beneficial than investing in what they’re currently investing in.

This might be the first time that this person has talked to a syndicator, so this is a new concept to them, so they might not be asking super-advanced questions, but it’s going to need to germinate in their mind before they make a decision to invest… Again, usually.

A good way to disarm them is to explain that they don’t need to go all-in, they can just do a very small percentage of their investment money, 2%, 5%, 10% in their first deal, just to make sure that it’s something that they like and that they’re comfortable doing. From there, they can do a laddered approach. They can maybe set a limit on the number of deals they want to invest in at a time, or the amount of capital they wanna have invested in syndications at that time, and as they become more mature in the process, they might invest more money, invest in more deals.

Encourage them to take a deep dive into your thought leadership platform. After the call, send them a video or two, or a piece of content or two, or three, that you know will be helpful to them based off of the conversation. Try your best not to pressure them, and just give them information that puts the ball in their court. That’s the best way to get them to invest; not only invest, but also come back after they’ve invested, and then make sure you have an easy way for them to commit once they are ready to invest in your deal.

Also, you can put them on your email lists, your newsletter list, any other stuff you send out, new deal list… That way, when they’re ready, if a deal comes across their table, they can just invest and they don’t have to reach out to ask you for your deal information; they already have it.

So those are some best practices for communicating and converting investors. We’ve got a lot more episodes on investor relations, so make sure you check those out as syndicationschool.com. I think we have like an eight-part series on securing commitments from passive investors, plus four hours of content, plus this, plus some of the other videos we’ve done before on this. So yeah, check those out. Those are at syndicationschool.com.

Until next week, thank you for listening and have a Best Ever day.

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