What would you put into an investor presentation?

Question

One of my goals is to purchase a commercial level apartment building (50+ units) in the next 12 months.  However, to pull this off, investor participation is a must.

Even though I understand the concept of a general business plan, I don't know what (or how) to present my idea and the potential building to investors.  While I do have three investment properties of my own (two duplexes and a single family) plus manage the leasing and maintenance of 80 of my cousins' properties, this will be my first investment property of this size.

What's the best way to go about this?  What do you want to see when somebody comes to you to pitch a commercial apartment building investment opportunity?

Thanks,

Mike

Vikram C. · Answer

I am actually looking for investment opportunities right now and here's what I would like to see.  It is pretty similar to what Jon said, but maybe slightly different.

1.  If you are going to have a significant stake in the property, then I would care about your qualities as a co-investor.  I would like to see if you have done similar deals in the past, whether you bring any skills to the table other than just identifying the property, whether investors you have dealt with in the past have generally had a good experience in their dealings with you after they had invested, etc.

2.  I would also, obviously, look at the data on the property.  Rents, NOI, price, terms, condition of the property, deferred maintenance, etc, etc.

3.  I would want the property to be in a growing area as opposed to a place that is dying.  No offense, but between, say, Cleveland and Dallas, I am going to prefer Dallas.

4.  One concern that I would have as an investor is that apartment buildings are not that hard to find on my own.  So if you were to bring me an opportunity, for you to earn your share of the property the purchase price will either have to be exceptionally good or you will have a miniscule share of the ownership.  I would in fact prefer to simply pay you a commission and own the thing outright.  Of course, if you were also bringing your own capital to the table, then it would be different.

5.  I am not into high crime neighborhoods, etc.  I am sure there is good money in those places, but I would not be interested.  For a given return on investment, I would always prefer a nicer quality of tenant.

6.  The property has to be somewhat mismanaged for me to buy it.  I am not just interested in the yield on my cash but also in appreciation.  If the property offers me the ability to significantly improve its cash flows either by increasing revenues or cutting down costs, then I can add significant value to it.

7.  Transparency.  In order for me to do business with someone, I would want transparency from both parties.  Neither one of us should conceal pertinent information from the other.  I guess Jon said it best - I would need to trust you and you would need to trust me.

Jon Holdman · Answer

I first want to see why this is a good deal.  Why its going to generate a lot of profit.  Why is the area good?  Why is this a good building?  What are you going to do with this building?

I then want to see why I should trust you to make this happen.  What's your experience?  What other, similar projects have you done?

What the exit plan?  Are you going to hold it indefinitely or are you going to sell?

What are my returns?  Do I get a cut of the cash flow?  First, you better convince me there is going to be cash flow, then convince me why you will give me a disproportionate cut.  Do I get a preferred return (i.e., a fixed percentage return on the cash I have into the deal)?  When do I get my money back?  What profit do I get on top of that?

How much money do you personally have in the deal?  Are you going to guarantee the loan?

Craig Grella · Answer

You may want to read a recent post on the biggerpockets blog, written by yours truly.
http://www.biggerpockets.com/renewsblog/2009/09/25/difference-sam-zell/.

It speaks to investment proposals for soliciting money for real estate ventures.

Hope you find it helpful.

-Craig

Christopher W. · Answer

In addition to what Jon said above, I would want to know what's in it for me? I do care about who you are and I do care about the property, but I really want to know what I'm getting out of the deal.

Michael K. · Answer

Thank you very much for that suggestion!  These sorts of suggestions are VERY helpful to me in "picking apart" the different sections that belong in my business plan.

Mike

Craig Grella · Answer

Information on loopnet is rarely confirmed and often mis-stated.  I would not use that as a source for property comparison.
You're better off using tax records or calling local brokers and management companies for information on your local market.

Paul Kestenbaum · Answer

If you are looking to add in Demographic information, which would help your Potential investors to look seriously at your Project, you may want to go to: www.loopnet.com or www.zillow.com & look at the numbers for the area.
They are especially going to also want to see where & how you will be filling-up the Property, to get the maximum occupancy, with reasonable rents, & thereby generating Positive cash flow...then, maybe after 6 months to a year, you will then have a Stabilized Property, & it should also have at least a 90%+ occupancy level, & you can do a Refinance to pull-out some cash, or put-up for sale & at least leave a decent CAP Rate for the Investor/Purchaser.

Michael K. · Answer

Craig, that blog post was especially helpful.  Thank you VERY much!

Mike

Bob Conroy · Answer

Vikram - that was a very clear and concise response.  I have been looking for private investors - and you have provided insight which will help my presentations.  I am starting to find some very strong apartment deals - Bs&Cs in stable/growing areas.  Would love an opportunity to chat.

Michael K. · Answer

Jon, that was very self-explanatory.  Thank you!
          
          Christopher, you said "In addition to what Jon said above..."  Since Jon already brought up the rate of return and how he is going to make money by investing, what are you speaking about?  I understand the overall concept of "what's in it for them," but what is beyond the profit for the investor?
          
          Thanks,
          
          Mike