The number one area of interest for people that reach out to me is how to work with investors to raise capital for self storage facilities.

I attract those type of question so often, I wrote about it in my book Creating Wealth Through Self  Storage.

At that time, I was working on two projects and had used most of my liquid funds. I decided it was more exciting, less risky, and would help me achieve my long-term goals if I owned a smaller piece of a larger portfolio rather than a larger share of a couple of projects.

Some days I wonder if I made the right decision, but that’s mostly when I’m tired and haven’t taken care of myself.

Over the years I have learned a lot about working with investors and what they are looking for.  I have made many mistakes with them, but in the long run, it has gone pretty smoothly.

If you think about it, it’s no big mystery. People placing money into real estate projects are looking for what you would be looking for. For the most part, if you put yourself in their position, get into their world and see how it is occurring for them, you will understand exactly what they are seeking by contemplating investing with you.

Let me share some of my insights and some of the key metrics I think investors are interested in.

In my opinion, investors move through stages. This is not a set format, but rather the stages or journey you must take an investor on to see if they are the right fit for your self storage project.

And believe me, you are interviewing them as much as they are considering you. The last thing you want is to have a partner that is not the right fit. I speak from personal experience.  If you do not interview your partners for a good fit, you may get the deal done but you can quickly create a business that you hate to go to every morning.

Deals come and go.  Partnerships tend to last a long time.

Back to the phases, or journey.

For self storage, I think the first phase is the Self Storage Story itself.

Self storage is a unique product (“asset class” in real estate speak). You know the reasons or you wouldn’t be watching or reading this.

Create your version of the self storage story and why it is so unique and safe for investors.

I never say this directly to investors, but my stance is that even if they don’t invest with me they need, really NEED, to get in this business some way.  No other asset class offers the benefits and risk reduction that this business does.

If they are trying to diversify beyond “The Market” (i.e. average returns the stock market offers) self storage is THE BEST alternative.   Nothing else offers the ability to predict future cash flows and Capital Expenses so accurately.

Live and breath this. When you wake up, wake up and be excited you get to play in this world of self storage, no matter where you are in the game. I love every aspect of it and every day I am grateful for the chance to express my creativity inside the world of self storage.

The next phase, and very closely linked to the self storage story, is your story in the self storage world.

My suggestion is to link the two together.  Then whether a particular investor ever invests with you or not, when they think of self storage they think of you.

Human beings live in stories.  It doesn’t matter what demographic or income class you are talking to, stories are what move and inspire people. Believe me, no one will invest with you unless they are moved and inspired by you.

Most of you know my story.  I was working as a commercial real estate agent, mostly in the office world.  I sold, managed and leased office buildings.  Then I went out looking at properties with the acquisition director of a self storage REIT.  I instantly saw the benefits self storage had over other types of real estate.

I fell in love with self storage and wondered how a guy like me could get in that business.

Then I figured out how.  With the exception of one project so far, all my facilities have exceeded the ten year cash flow projections I created at the beginning of each deal.

That is my story – a very much shortened version without as much emotion as I use in an investor presentation.

You create yours.

Think about it. Almost every person you admire and is a coach or role model has a story.

Tony Robbins.  Everyone who has read or heard anything he has every done knows his story about running on the beach, falling down, and not getting up until he re-invented himself.

Think of the people you admire, then think of their story.

Create your story inside the world of self storage and then link it with the self storage story.

Then you have two of the four phases covered.

You see investors first want or need to understand what they are considering investing in. No, they don’t need all the minute details and very few will sit long enough to get them.  But no one is going to invest into something they don’t think they understand.

Then when someone gets self storage, the absolute next instant they are looking at you.  Who are you and what do you know.

They want to see if (1) you know what you are talking about and (2) they can trust you.

Know this as you construct your stories.  No one will invest without the stories.  Ask any investor where they invest in, and they will tell you the “story” of what it is and why.

Ultimately, the investors who work with you are going to bring the majority of the investors you will work with in the future.  You see, once your initial investors internalize the self storage story, they will create their own story within self storage.  They will then share it with their friends and relatives.  And then those people want in.

SO here is where we are so far.

Stories are the mode of conversation. Then the phases are…

1. The Self Storage Story

2. Your Story

Then, number 3 is….the deal.

Quickly tell them what the overview of the deal is you are going to offer them.

Why?

Because once a potential investor gets the self storage story, and then gets you are someone who knows what you are talking about, the next and almost instantaneous phase is “What do they want from me?”

If you start going into the story of the deal, the numbers of a deal, they will not hear it.

You have got to tell them the overview of the deal, what you are asking from them, and what you are going to give them

Example: – We are raising $1,000,000 for a $4,000,000 deal.

• You will get an 11% cash on cash preferred return while your money is in the deal
• We anticipate your money being invested for 4 years, then you get it back.
• Then the investors will still own 35% of the ongoing cash flow and sales.
• The investor will get proceeds upon a sale.

It can be that simple.  Understand that they will hear nothing else until they know what you want from them and are going to offer them.   You would be exactly the same.

Give it to them.  Then…

4. The details of the deal

Here is where you have got to be listening and know who you are working with.  The mistake I make here is often to go into way too much detail.

You will know the deal well because you have been living and sleeping with it by now. The tendency is to show how much you know by going into so much detail it starts confusing people.

Do you know what people do when they are confused?

Nothing.

They do nothing.  That includes investing with you.

My suggestion is to offer a very high view of the deal. Then when they ask for the details, give it to them.  Let the majority of the information come from answering their questions.

Start by saying something like:

• We have the facility under contract for $3 million.
• It will cost $1 million to expand.
• When we hit stabilized occupancy of 85%, it will be worth $5.2 Million using an 8% CAP rate to determine value.
• We should be able to give you your money back between years 4 and 5, and remember will be getting an 11% cash on cash return while your money is in the deal

Let them start down the road into the details.

They will tell you what is important to them and how much detail they need to know to feel comfortable with the deal.

If they are still with you at this point, they get the self storage story.

In my experience, at least with the people we have been working with as investors, what they want to know (their benchmark numbers) is:

• How much money do you want from me?
• When do you want it, and when do I get it back?
• What is my return?
• How do you pay it to me – monthly, quarterly?
• Can I trust you with my money?
• Do you know what you are doing?
• What is my risk, or what is the downside potential of the deal?
  • The tendency here is not to talk about the risk. They will not invest until you do. Don’t avoid it, dress it so they don’t have to ask.
  • Example: “The real risk in this deal is that another person enters the submarket with more space for lease. We address this risk by getting a feasibility report.  In this report, we will know the supply/demand of this submarket, and we will know the barrier of entry into this market.  You will be able to quantify your risk yourself from this third party report.”
• Some investors want to know the IRR.

I often get asked, “What are the returns I need to offer?”

Well, I don’t exactly know.  A lot depends on how you are structuring your deal.  How much ownership you are offering.  How much of the cash flow you are offering.  Are they on loans or not.

All I can tell you is that in my experience we offer 10% to 12% cash own cash returns, 30% to 40% of the LLC shares, and around 20%  or more IRR’s.  Our investors are not on any loans.

But that is just our offerings. My coaching is to work with an attorney who creates LLC documents for all kinds of investments. I have learned a lot from my attorney and he has given good advice on what investors are seeking.

Once you establish a relationship with an investor, they will tell you what they want.  I have learned more from my investors than they have learned from me.

One last piece of coaching here. Be sure that you feel comfortable being able to follow through on what you say you think you can do in the deal.

The tendency is to say whatever you need to have them feel comfortable with you and the deal.

Believe me, they will respect you a lot more if you are clear with what you think you can do and what you are unsure you can do. That is what has investors begin to trust you. They will often push it just to see how you respond.

Next week I will tell you what I have learned in terms of keeping the relationship with investors good and all the mistakes I have made.