This is the fifth and final m in a series of episodes exploring the world of raising investment capital for those of you wanting to use other people’s money to get in and grow your self storage business.
In Episode 316, we had a quick look into who “investors” are, what they usually have their attention on, and the difference between investors and partners you may need. In Episode 317, we explored the different types of deal structures you could possibly offer investors. In episode 318, we discussed where your future investor partners are currently hanging out.
The Last Episode examined when and some basic ideas on how to connect with your potential investors.
In this episode, let’s explore the HOW…how you may show and what you may say when presenting a self storage opportunity to potential investors for your self storage deal.
Your Attorney Is Your Guide
If your attorney trumps anything said here, go with your attorney’s guidance. Additionally, anything you will present to potential investors, run by your attorney first.
One can quickly run afoul of SEC rules and regulations, and I am no expert. I am just sharing what I have done in the past.
Once a potential investor self-selects in and says, “I want to invest in your deal,” our attorney has already created a host of documents, such as a summary of offering, subscription agreement, and LLC Agreement that we forward to the potential investors so they may share with their attorney and accountant.
In your first deal or so, there will most certainly be some negotiation on the LLC agreement, often from lead investors putting the most money in. However, after the first deal, our agreement is our agreement.
Follow the advice of your legal counsel on these negotiations.
The Spaces An Investor Goes Through
As an overview, we live in language for us as human beings.
Unlike any other animal we know of on this planet, our reality is shaped inside language.
How the world occurs to us as human beings is inside language.
We live in a story.
You, as someone raising capital, are, in essence, a storyteller.
Remember, investors think they are logical, investing in a deal. But you, as the sponsor, know they are not investing in just the deal. They are either inspired by you and your story or not.
They are not investing in the deal. They are investing in you and the story you are telling.
Then they look at the “deal.”
So, let’s go through the spaces you, as a storyteller, will take an investor through as you present the “deal.”
- The Self Storage Story.
I always start here, no matter what a potential investor thinks they may know about self storage.
I explore a little of the history of self storage, but mostly, why it is a good investment.
Things like:
- In essence, it is a steel wall and a concrete floor getting apartment-like rents.
- There are very few ongoing capital improvements, like replacing appliances, carpet, painting units, real estate commissions to replace tenants, etcetera. Thus cash flow is very predictable compared to other real estate investment classes.
- A small reserve fund usually handles all capital funds needed over the life of a storage deal.
- Self storage is the lowest foreclosed-on asset class of any investment real estate.
On and on.
At some point, I will see that the person on the screen or sitting across from me gets it.
I can usually tell because they start looking at me and wondering who I am at that point. Until then, I have said very little about myself (most people presenting deals begin by telling how great they are).
- Your story in the self storage story.
I don’t really start talking about myself much until I get they get self storage as the best investment out there.
Mainly because they don’t care who I am until this point.
Now I weave the story of how I came into self storage.
Everyone will have a different story here, but I created this as my goal here.
I know not everyone will invest with me into self storage. But everyone who I ever-present to will always think of me every time they hear or think about self storage.
I present my story inside the self storage story in such a way as to set myself up as someone who knows this industry.
Yes, even in my first deal.
I am sure you hear my story to some degree. I was (and still am) a commercial real estate agent. I was primarily in the office business when I got a call from a storage acquisition director for a REIT.
I saw what a fantastic business it was. They are not investing in the deal; they are investing in you (and the story you are telling).
I saw the type of product self storage was and tried to figure out how a guy like myself could get into this business, etc.
The point here is not my story, but yours. Create it in a way that tells the potential investor you have studied, know the ins and outs of this business, and if anyone can create a space in the self storage industry for someone like the investor, you can.
Early on, I had no track record in storage, so I used my track record in other things to show I could create good and successful situations, and I quoted a lot of statistics about self stooge I memorized from the industry.
I would say things back then like:
- Two out of three decisions about renting self storage are made by women. So, we will create a facility that appeals to them. They are focused on cleanliness, security, then price.
- Most storage customers live within four to five miles or closer to a facility they will rent from, so we know where our customers are. We hire independent consultants to complete feasibility reports quantifying supply/demand. I think this is the safest type of investment you can ever be in.
I just wove into my story inside the self storage story, data, and facts that (1) re-assured a potential investor I knew the industry and (2) they could feel safe because I had studied and had a specific game plan.
I never said these things. I know they are important here.
I know I have about ten minutes at the most on this part, so I have to be clear where I am starting and going.
I want the investor to feel confident that they are talking to someone who knows what they are doing and has a plan, a strategy that sets us apart from every other type of deal or storage investment they can look at.
Now, the investor knows storage is great, and they are listening to someone who appears to know the business and has some kind of plan.
You will begin to see that now the potential investor is starting to wonder, “What does this guy really want from me?”
- The Deal.
Only after I see the potential investor gets the self storage story, then my story in the self storage story, will I go over the deal.
Here I do it at a very high level. I will get into the weeds only if they are dragging me there. Usually, I have back up with the proforma form the Storage World Analyzer creates (or Excel if that is what you are using).
Example:
An expansion where we are buying 25,000 square feet for $2 million, expensing it another 25,000 square feet at a cost of $1.2 million.
The total cost is $3.2. I estimate the expansion to take 18 months to rent up to 88% occupancy, and when it does, the project is worth $4.8 million, and it is generating a 12% cash on cash return on the money you invested.
Yes, I will talk more about the type of project location, why I chose this one, but I am not deep into all my assumptions, showing them how well I can work a spreadsheet.
The thing to remember is this:
- There is nothing inspiring about numbers.
- Investors invest when they are inspired.
Yes, we all think we are smart, numbers-driven analytical investors.
Consider that a myth.
Just try on that all of us are emotional-based decision-makers, and once inspired, we will seek out information, such as numbers and rates of return, to validate our emotional-based decisions.
I am not saying that is the TRUTH. I am just saying that is where I come from as I present potential deals to investors, and it has served me well.
I will usually use a slide deck with pictures and minimal text and have backup printed material to leave with them (or go over in detail if I have to).
How you present and how pretty your slides are, in my opinion, are much less important than moving someone through the above three spaces in a way that leaves them (1) realizing that self storage is something they should really consider, and (2) if they are going to invest in self storage, you are the person.
Conclusion
This has been a very high-level look at how I have raised investment capital for the deals I have done starting off in the self storage business.
Again, there is a lot of detail in what you say on the deck, and the Private Placement Documents your investors sign that your attorney will go over with you.
The design of this series of episodes is to give you an overall direction to head in. I do not feel I am knowledgeable enough to go over all the different types of syndications and private placement options out there for you to choose from.
I hope to show you my take on raising money, who you should be talking with, where they are, what they have their attention on, and the spaces to take them through.
If you want one-on-one coaching, know I have coached people through their first capital, and every situation is different.
Finally, I will end the series as I started it. Get a competent attorney to be your main team member if you are in the capital-raising business for money to go into your self storage deals.
