Every investment has potential risk and potential reward so every investor evaluating an investment balances their perception of risk and reward. They weigh how much risk they are willing to accept for a commensurate reward. If you are looking to attract and keep investors for your multifamily apartment opportunities, you need to consider structuring the investment in such a way that it demonstrates how you are reducing your investors' risk. Here are six ways that you can show your investors that you are reducing the risk of their investment.
Management team experience. Your investors want to know that you have the experience you need to do the job. Put yourself in your investor's shoes and consider how confident you'd be if someone asked you for money but couldn't demonstrate that they knew what they were doing! Demonstrate your management experience and you'll increase your investor's confidence.
Collateral protection. Offering the property itself as collateral is one option, as a pledge to the investor that their money is protected. And sometimes, you might even need to offer more, like another asset as well. This is attractive to investors because it assures them that even if you fail, they will still come out okay.
Third party appraisals, third party repair, rehab cost estimates. This is when you tell an investor: "Instead of me making estimates, we'll get a professional to give us an estimate". An investor will have greater confidence in your ability to spend their money when you offer these third party estimates and appraisals. In doing so, they'll sense a lower risk because they won't feel that you are over-charging for work being performed, and therefore, you are spending their money wisely.
Cash flow in excess of debt service. Debt service is the amount of money it costs to pay your debts each month. Investors who entrust their money with you for an income producing investments like a multifamily apartment will want to know that the cash flow earned from that apartment will be able to cover the amount owning each month on the debt, plus more. If you can show that rental income exceeds the amount you own on the debt, your investors will like that.
Transparency, detail, and contingency. A multifamily apartment investor doesn't just want to deliver a wheelbarrow of money to the front door of your multifamily apartment and hope that you'll spend it well to get them a return. They will invest much more willingly when you show them all of the anticipated repairs, the timeline for the project, the names and estimates of each contractor, and how you plan to handle any contingency. Plan ahead, and then show your investors that your plan ahead.
Key man insurance, business interruption insurance. It can be tempting to skip acquiring the insurance because it's an extra expense that you feel you won't need. But having insurance will assure your investors that, if anything were to happen to you, their investment would be covered.
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Think you need big cash and experience to do apartments? Well, Lance Edwards is living proof that you can start with multifamily investing - just like he did and using none of his own money. Utilizing the multifamily apartment strategies he now teaches and writes about, Lance retired from his job in July, 2005. For more information on how you can achieve financial freedom using other people's money, visit
http://www.ApartmentWealthMachine.com
