Money Investors aren’t customers – they’re business partners, and real estate investors should treat them as such. Regular updates and occasional call for advice go a long way toward building a quality relationship.
When facing the pressures of funding your next real estate investing project, working partners founders may neglect money partner management, but it’s a critical component of success. Learning how and when to communicate with investors can enhance accountability, encourage ongoing feedback, and attract additional investments.
Communication may be difficult to measure, but its effect can be significant. Consider Tesla founder Elon Musk’s 2018 tweet about taking the company private: A message consisting of fewer than 280 characters cost Musk and Tesla $20 million each in fines and a shareholder lawsuit that could amount to billions in damages.
New capital raising real estate investors, however, often take the opposite approach: Instead of oversharing, they undershare. That can be a costly error in its own way. By not engaging regularly and effectively with their money investors, working partners could lose opportunities to capitalize on the backers’ possible experience and knowledge.
Honesty, openness, and timely conversation must be central to every good relationship, and this one is no exception. Money Investors generally aren’t looking for anything more elaborate than routine updates coupled with periodic conversations about future plans, so working partners don’t need to be professional communicators to do it effectively.
And the benefits are numerous: Regular contact with investors helps working partners enhance their networks by getting referrals from existing money investors, strengthen their businesses as more capital becomes available, and foster long term relations to help their businesses grow.
Make Time to Connect
Why don’t working partners communicate with investors more effectively? One reason is time. Most working partners don’t prioritize communication is because they think their time would be more profitably spent on other pressing tasks.
But nurturing that relationship is a critical task. A useful way to always keep money investors in the loop is through periodic reporting. Most investors are happy with a concise monthly or quarterly financial report (Profit & Loss Report – P&L) about how the project or company is doing. And it doesn’t take as much time as working partners might fear—once you’ve put the first report together, the subsequent ones generally shouldn’t take more than an hour to prepare.
Establish a Rhythm
The most common mistake that working partners make is thinking that investors are doing them a favor. That thought makes them afraid that they are being annoying when they communicate with investors by sending money investors frequent information about the project or asking for guidance.
However, these money investors aren’t patrons, but business partners. They want to see how their investment is doing, and many are willing to offer any help they can. It’s not that you’re bugging them; it’s actually putting them in a position where they know what’s happening with their money.
Set a regular communication routine to communicate with investors so that all parties are aware of when they can expect the next update be it quarterly, monthly or annually. This helps instill confidence with the money investors and accountability of the working partners.
Keep It Concise
Working partner may be tempted to send their investors elaborate presentations and reports with all the information they can gather. They shouldn’t. They’re looking for particular facts and pieces of information when they get an update. First and foremost, is the project or company financially OK? Do you need to raise additional capital (cash call)? What’s your most urgent problem?”
The report should always include your primary KPIs, actual to budget, financial performance P&L, account and reserve fund review and market date. It’s also good to include milestones like renovations ahead of plan or budget or possibly rental income higher than anticipated or reaching another business goal.
What has been done since we’ve last spoken? What’s the overall status of the project? What are the new updates? What are you trying to do in the near future? That’s the information a money investor needs from a working partner. This report should not be more than 2-3 pages.
Keeping the status reports short and consistent will make it easier for money investors to compare different periods, understand the projects status, and respond with better insights. That, in turn, strengthens accountability and collaboration.
Even if investors don’t read every report, the discipline of building the reports to regularly communicate with investors means up-to-date answers to common questions are often readily available, which can save everyone a lot of time.
Ask for Help If You Need It
Working partners understandably want to project an image of strength and reliability, and may feel that asking for advice can undermine that purpose. They may be afraid to seek help from their money investors because that could imply they aren’t prepared to lead or fulfill their promises. However, money investors typically want to help working partners to ensure the project succeeds, and they’re usually happy to take those calls.
As a working partner, you should expect your investors to add value. They shouldn’t be making your life more difficult by getting involved, but they should be available for counsel and for whatever doors they can open for the company. It does not make you look weak to ask for help.”
Communicate Bad News Promptly
Working partners can feel nervous about disclosing that they’re going through a challenge, but it’s unlikely to surprise money investors. Good money investors know that unforeseen challenges can arise and that’s part of the risk of investing in real estate. So the complete absence of everything going exactly to plan with no obstacles actually may raise suspicion.
Just as seasoned money investors are no strangers to obstacles or challenges of a project, working partners need to be prepared for that possibility as well. Working partners need to be proactive when they communicate with investors about the challenges they’re facing ahead of time.
It’s critical that your money investors hear bad news from the working partner first. You don’t want money investors finding out that your project or company is doing badly on social media. Working partners have to keep communication constant, and the corollary to that is you always have to be accessible, within reason. If your money investors have comments, questions, or concerns, they must have the ability to call you.
Paint a Complete Picture
It’s tempting to share only the best possible version of the future to persuade people to help you make that future happen, but communicating with integrity is essential to maintaining trust with money investors.
This means more than just not lying. Working partners are very optimistic by nature, but need to be careful not to let optimism turn into exaggeration. You started a real estate investing business and have all these ideas, but you need to be very clear about the facts. Sometimes a working partner will send an email to everyone, making it seem like the company has secured their refinance that they planned for, but it was actually just a preliminary conversation with the broker stating he thinks he can get the financing. Overstatements like that can impact your credibility.
Working partners shouldn’t oversell your capabilities or experience. The worst thing you can do when you take money is not being honest about what you know and can accomplish, setting the bar unrealistically high especially with investment returns. If you told a money investor that your company could reach Point B in 10 months, but you didn’t come anywhere near Point B, you’ve lost credibility. Money investors put their money in people they can trust. All your communication should try to reinforce that trust.
Setting realistic goals and communicating regularly and with integrity can build a network of money investors for future projects.
Communicate for Success
When people engage with one another, when communication is clear and the possible outcomes are well-defined, they can face even the worst scenario with minimal conflict and potentially set the stage for future success. The best way to face bad news is doing it in a timely manner.
Communicating with money investors doesn’t need to be difficult, but it must be intentional. Good communication with investors nurtures the kind of partnership that begins with your first pitch deck and lasts well beyond your investors’ exit.
