I take an interesting approach to selling investors, or limited partners (LPs), on my deals and trusting me with their money. I don’t roll out the red carpet, boasting about how great of a space self-storage is, how my company cuts costs and grows revenue, or the tailwinds in the industry and strong returns. In fact, I’ve found the better approach for me is to gain trust by talking about the downsides of the opportunity, even if that seems counterintuitive.
Every potential investor I meet with already has reasons in their head as to why they like storage, or at least what my company has to offer. They’re coming into the call with an idea of why they’re interested in investing with me. And from roughly 300 calls over the past 6 years with potential investors, I’ve had a lot of success by immediately laying out the negative.
I tell them that we run a great business with a strong track record, but there are things that they should be aware of. For one, I’m worried about property tax risk, because the rural towns that we’re investing in have a shrinking tax base and growing budgets, so there’s a chance that our taxes go up to account for this. That goes hand-in-hand with low population growth, meaning these assets are bought with a focus on cash flow over appreciation. We can’t control what people are willing to buy our facilities for, or investor appetite in rural areas, so a sale 10 years down the road may be hard to come by. I’m worried about interest rates as well, and that our time horizon on a good investment may expand if we hit hard times. I warn the investor that we may see suboptimal returns for years, and there’s a chance we go a long time without a refinance or sale.
By and large, investors appreciate this, they’re happy to hear the straight-up truth. Laying out the negatives like this builds trust, and then the investor ends up talking me into what they like about the deal. They sell me on letting me take their cash. Because we’ve bonded, we’ve formed a connection, and they trust me.
It’s not all about a pushy sales approach or promising the world. The downsides-first approach is easier for me with a high volume of interested investors, but you can learn from it even if you’re still building your investor base. You don’t need to be entirely negative throughout the call, but proactively touching on downsides will lead people to trust you and help you secure the investor you want.
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