Apr 26, 2019
050 Educating Your Investors is Key to having them Invest with you
The topic today was about how to get investors to invest with you and I honestly believe the most successful way is to educate them about investing in Real Estate.
Most people don't understand about the business of Real Estate. For myself even though I was a Financial Adviser, I was trained to sell mutual funds and life insurance and knew nothing about real estate. I still remembered telling one of my clients who came in to ask me about a potential Real Estate investment and I told him why would you invest in real estate? Its an asset which pays only 3% in annual returns with inflation. I did not understand cash flow, how the tenants pay down mortgage for you,forced depreciation and all that stuff. So being a financial adviser I didn't understand how investing in Real Estate business works so understand that most people don't get it. So you have to educate them.
So I always ask this question when I meet with someone, where do you think your biggest net worth increase has came from over the last 15-20 years? And the answer is their house. For example, if they have done a refinance, or just if they have tracked their net worth, which most people don't is through their mortgage pay down and appreciation of their house alone.
So when you talk with the potential investors, you need to educate them about upside and downside as well. As we all know, there's always a downside in investing-even the guaranteed GIC has to count for inflation and taxes.With real estate investment, we need to talk about the potential of the business definitely, but also the risk that weighs on that potential. Because you have to go through the market correction, cash calls, vacancies and fights with Office of Residential Tenancies (ORT) etc and those are all the things that go on behind the scenes.
So as I mentioned to my students before that as a Joint Venture, you're worth every penny because you have to deal with all that stuff. So a lot of time the investment partners think their money is the most important thing in the deal, yes, of course it is but the deal wouldn't happen if it wasn't for you either.
So do remember when you're making a deal with your potential investors, do tell everything about the potential outcome of the deal whether it is positive or negative. Again the key to invest in real estate business is to educate yourself as well as to your potential investors.