Investor Insights Wanted: How to Present ROI and gain investor confidence?

[Ashley Mierez]

This week, I’ve been struggling to get responses from investors, and I’m hoping for some advice. I’m trying to understand:

1. What makes a deal truly stand out in the San Diego market or any market?

2. How can I better evaluate and communicate an investor's return on investment (ROI)? (currently I have been sending my investors a 7 question survey to fill out for their criteria)

My goal is to build genuine, long-term relationships with investors by creating opportunities that benefit everyone involved. I want to learn how to do this the right way, without coming across as overly focused on profits.

If you have any tips or experiences to share, I’d be incredibly grateful. Thank you for taking the time to help!

[Dan H.]

Quote from @Ashley Mierez:

This week, I’ve been struggling to get responses from investors, and I’m hoping for some advice. I’m trying to understand:

1. What makes a deal truly stand out in the San Diego market or any market?

2. How can I better evaluate and communicate an investor's return on investment (ROI)? (currently I have been sending my investors a 7 question survey to fill out for their criteria)

My goal is to build genuine, long-term relationships with investors by creating opportunities that benefit everyone involved. I want to learn how to do this the right way, without coming across as overly focused on profits.

If you have any tips or experiences to share, I’d be incredibly grateful. Thank you for taking the time to help!

Holding LTR in san diego on a new purchase is challenging not to be large negative at high LTV. Alternative rent models (STR, MTR, rent by room, etc.) do not necessarily do better and are more work. i have 4 STRs that i use professional PM, 2 of the STRs, after expenses including PM, are not outproducing my LTRs.

For optimal ROI in this market requires a value add and quick, at least partial, exit. Even flips are getting razor thin margins (see reference below).

This requires union tribune subscription, but many San Diegans have that subscription  https://www.sandiegouniontribune.com/2024/12/16/home-flippin...

To summarize, average purchase price was $760k, average sale $915k.  When you add rehab costs and effort, holding costs, and selling cost there is not much profit. 

So it requires more significant or sophisticated value adds.   MF with many garages to convert to ADUs, parcel splits, full on development, coop/tic with the resources to handle financing challenges, etc.

To raise money in this market as a newby will also be challenging unless you can get it from friends and family. In this market i would only go that route if you have the resources to cover their initial investment so there would be no loss of capital if things go bad.

One of the syndications that i am an LP buys MF, rehabs the existing units, converts tbe garages into max number of studios, brings all units to top of market rent, and exits with max NOI. They have done his successfully in the San Iego market repeatedly. However, the investment i am currently in with them is not looking good. They are late making any distributions. They seem to want to communicate things are going ok, but i find their communication to be below expectations. My point is even some experienced operators doing more extensive/sophisticated value adds are struggling in this market.

I question if you recognize the work and risk necessary to succeed in the current local market.  

By the way my last local purchase was dec 2021 which was before rates started increasing (just a few months before, i had good timing - when the fed states they are going to be raising rates, it is a good idea to believe rates may go up).  Even with the reduced rates, my cash flow is poor for my equity position (i would still be cash flow negative at today’s rates).  Fortunately my value is up about $1m above cost, so the poor cash flow is a mild inconvenience.  If purchased at today’s rates i would have sold after obtaining the value add.  My point is i am finding the local market challenging.  

Good luck