#078: Common Questions From Private Investors

Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and you’re investing with The Accelerated Investor Podcast.

Hey, welcome back to Accelerated Investor and I am so excited to join you today. I got a question the other day from one of our members and we were talking to our staff about this is you know, what are the most common questions we get from private investors that people were asking? Some of our students and some of our staff that talked to our private investors were wondering, you know, what are the most common questions that you get Josh from private investors? What should I be ready for? Like what’s, they’re going to pull out the weapon and they’re going to fire at me and I’ve got to have the armor to be able to deflect or answer the question when it comes to why should I invest with you? And this is one of the beautiful things about crowd funding. Since 2011 when President Obama signed in the Jobs Act, to jumpstart our business startups act and crowd funding and 506C became part of the securities exchange commission and uh, signed into law.

The access to private money for real estate has it’s mushroom. It’s massive. It’s gotten so much bigger because people can advertise now for private investors as long as it’s under a 506C or some sort of crowd funding platform, they can advertise for investors. Of course those investors have to be accredited. But for me, I’ve been able to successfully use 506B Reg D offerings, which allows me to recruit and raise money from people that I already know, people that I have prior existing relationships with. And I get the question, well, what are the most common questions you get Josh from private investors? What’s the best way to handle it? And I thought back about all the different interviews I’ve done. I’ve done hundreds if not thousands of meetings with potential private investors. We managed over $35 million. We’ve got over 250 private investors.

And I thought back, well, what are some of the most common questions that I get? It’s just so simple and easy for me because I’ve done it so many times. I never really even thought about it because I kind of know the question before it even comes. So I started thinking, what are some of the most common questions that I get? And I want to basically tell you those five common questions. But then I want to ask a better question. I want to ask a new question. So the top five questions that I get from private investors, number one always is what’s the minimum? What’s the minimum, okay? So I’ll talk about that in a minute, how to handle that. Question number two, what’s the exit strategy? Number three, when am I going to get my principal back? Number four, what’s the downside? What’s the worst case scenario? Number five, what’s your experience, okay?

Like what have you done before? And number six is along the same lines of what’s the minimum, what’s the downside? Common question of course is, well, what’s my upside? What’s my return? What can I get? So those sex, right? What’s the minimum, what’s the exit strategy? When will I get my principal back? What’s the downside? What’s your experience and what’s the upside? What’s my return? And I’ll talk to you about one other weird question that I get in just a minute, but, so let’s talk about each one of these, right? And I think it starts with, in working with private investors, it starts with using the securities exchange commission to your advantage. I’m not talking about doing anything wrong or anything deceitful. I’m talking about using the law to your advantage. Actually moving the law to your side, okay. So with a 506B Reg D offering, that means that you have to have a prior existing relationship with an investor before they can invest.

What I’ve learned over the past 10 years, especially the last five years of recruiting and raising tremendous amount of money, is that the securities exchange commission has required that you have a prior substantial relationship with a person before you make them investment opportunity and before you make them an offer, prior substantial relationship, okay? And so what I do when I meet with an investor for the very first time, let’s say they were introduced to me through a friend. So I met a woman actually last week, her name was Polly. She was introduced to me by her friend. Her name is Sam, and both women, two women. Sam’s been investing with us for years. She refers us to her friend Polly. I get on the phone with poly. I say Polly, this is great. So great to meet you. I always, I always, always, always say when I first started the conversation, what did I catch you in the middle of today, right?

What did I catch you in the middle of today? Super easy question to ask. Instead of just saying, Hey, how are you doing? Everyone’s going to say, Oh, I’m doing great. What did I catch you in the middle of today is like, because what’s on their mind today? What they’re doing right now is easy for them to answer and it’s easiest for me to talk about and usually it’s something positive. What did I catch in the middle of today? Oh, you know, I’m working, I’m at work, I’m working on this project. Or, hey, I just dropped my kids off at soccer, or hey, I just finished making dinner, blah, blah, blah, whatever it is. What did I catch in the middle of today? It’s so easy to break the ice that way. Instead of, hey, how are you? Hey, what did I catch you in the middle of today? The next thing I say is I immediately want to edify whoever I got the referral from, okay.

We only work on referral. We don’t do any general solicitation advertising. I don’t talk to anybody who’s cold. I just don’t. I’ve built my business on referrals. I’ve insisted from day one on referrals. I’ve insisted on day one from getting relationships through relationships that I already had. So almost never talk to somebody who’s a cold investor. Instead, what I get is a lot of referrals because we treat people well and we produce amazing results. Most of the time we’ve had times when we’ve had a quarter where, you know, the return was less than 8% or 10% but for the most part we’ve produced amazing double digit returns for our investors. We’ve never lost money for our investors, but you get the idea. So the second thing I want to do is I want to edify whoever referred me. So I’ll say things like, you know, Hey Polly, I’m so excited that Sam connected us.

You know, Sam is such an amazing giving person. Sam has been a great person to get to know. And then of course, if they’ve invested with you, you want to drop some hints. Yeah, Sam’s invested with us before they’ve invested in our fund or in one of our one off deals or apartments. And so we break the ice by talking, hey, what did I catch you in the middle of today? And then I want to edify and talk about the person that referred because I want to again, break the ice and then build a bridge, break the ice and build a bridge. Break the ice, build a bridge, okay. Then the third thing I’m going to do is I’m going to make sure that I use the SEC to my advantage and what I’ll say is, listen, I appreciate that you’re interested in real estate. I don’t know if you’re interested in being an active investor or a passive investor or both.

I’m not sure if you’re interested in diversifying your portfolio or doing a rollover or even if you’re not interested in investing in real estate at all. But what I do know is the securities exchange commission has required us to have a prior substantial relationship before I make you an investment offer. So even if you wanted to cut me a check for a half a million dollars right now, I couldn’t take it and I don’t want to take it. I want to make sure that I’m a fit for you and that you’re a fit for us. So today is more of a strategy session or you and I can get to know each other. I can ask you a lot of questions about your goals, your objectives, what you want to accomplish with your money, and that’s going to allow me to check that off the box. Check the box that says that I know you, I’m aware of who you are.

I have a prior substantial relationship with you when the SEC, if they ever walk in my door, I can say, this is how I met this person. I had a prior existing relationship. We developed a relationship and then I made them an offer. You see, doing it this way for me has allowed me to host a webinar with a group of people that I’ve already warmed up that I have existing relationships with hold a webinar and raise $3 million in 60 minutes, okay? Versus what I see all over Facebook is guys that are investing in single family homes, they’re investing in apartments. They’re investing in flips, they’re investing in rentals, and they throw up on Facebook and say, Hey, I’ve got this deal. If you want a 12% return, you know, we should talk. Or Hey, I’m investing and if you want to be a passive investor, secure, buy real estate and earn a 10% return, please direct message me.

Well, that is the essence of a general solicitation. It’s a total no-no unless you have a 506C exemption already filed, okay? So by building it through relationships, I’m able to warm up tremendous amount of investors and a tremendous amount of capital without making them an offer. And then when I have an offer, I can oversell it or basically recruit more money than I need because I’ve got people waiting, foaming at the mouth for a deal, okay? So my step number three is, again, I blame it on the SEC, I blame it on the securities exchange commission. We’ve got to have a prior existing relationship before I can make you an offer. So the good thing about today’s meeting is, is I just have some questions that I want to ask you to get to know whether you’re accredited or not. You know how long you’ve been at your job?

How much money do you have saved? What are your goals for retirement? Do you have money in stocks, bonds, mutual funds? Do you have a financial advisor? Do you have an attorney? Do you have somebody who helps you make financial decisions? Are you married? Is your spouse going to be part of the decision making process? Do you have kids? What are you saving for ? It basically, because I blame it on the securities exchange commission, able to ask all of these very, many people would say intrusive questions. I’m able to ask all these questions to a complete stranger that they would otherwise never answer because one, I broke the ice. Hey, what are you up to today? What did I catch you in the middle of? Number two, I built a bridge, right? I connected and I edified whoever referred me. Number three, I blame the securities exchange commission.

And I said, Hey, I can’t even make you an offer today. I can’t even explain our offer. Even if I wanted to, even if I needed a half a million dollars and I had to have the money today, I can’t do it because we don’t have a prior existing relationship. Matter of fact, we have a 506C exemption and I can recruit money through general solicitation, but I don’t. I don’t because I’ve tried to recruit money that way and the sales process takes 10 times as long and people want to give me one 10th of the money. The sales process take 10 times as long and they want to give me one 10th of the money.

So after I go through that line of questioning and I get those answers and I’ve recorded other podcasts and other content inside of our training programs or coaching programs and in the podcast and how to handle that first line of questioning. So I sort of buzz through that. Now when I actually do make them an offer, now we get to the most common questions that I get from private investors and they ask me things like, well, Hey Josh, help me understand what’s the minimum investment, okay? So I would highly recommend that you set your minimum investment at no less than a hundred thousand dollars, okay?  No less than a hundred thousand dollars. And the reason why is people will search for the bottom, they’ll search for the bottom. Meaning if your initial investments $10,000 grand, they’re going to give you $10,000 grand. If you tell them the minimum is $100,000 grand, they’re going to find ways to give you $10,0000 bucks.

And in our private placements, there’s always language in there that says we can have the exception to take less if we want the manager, the general partner, the managing member has the authority to accept less than a hundred thousand dollars at their sole discretion. So we’ve learned over time to jack up the minimum and then accept less if we want, okay. So make sure always $100,000 or more. Number two, what’s the exit strategy? People love the idea of getting their principle back in the next one to three years or less. So we’ve tried to structure all of our investments, both residential and multi-family in a way that they can get their principal back in the next one to three years, either through a sale or a refinance. Now, investors really love it when they can put their money in play, they can get a preferred return or get a, you know, an interest rate, and then get their principal back and stay in a deal in perpetuity with no money in it, okay.

So what’s the exit strategy? You’ve got to that locked in. Are you going to sell the property going to refinance it? How do the numbers support the exit strategy? Number three, when will I get my principal back again? It’s part of the exit strategy. If the exit strategy is to refinance in 18 to 24 months, then you know they’re going to get their principal back in 18 to 24 months. But there’s a lot of apartment deals that we’ve looked at and deals that we’ve considered getting involved in where people don’t get their principal back for 5, 7, 10 years from now, okay. So obviously the sooner they can get their principle back, the better. Number four, what’s the downside? What’s the worst case scenario? And I always tell them, look worst case scenario is that this is a total ponzi scheme. I’m the next Bernie Madoff and you’re going to lose all your money.

And that kind of makes them laugh. It kind of makes them chuckle, but I’m actually relatively serious about that because in the private placement memorandums, we have language in there that says you can lose all your money. It’s in the private placement in big bold letters in probably five or 10 different places you can lose all your money. So might as well make a joke out of it. Might as well have some fun with it. You know the worst case scenario is I’m the next Bernie Madoff and you’re going to lose all your money and they’re like, Oh really? I’m like, I’m not the next Bernie Madoff, okay. But in the private placement memorandum, it’s going to say you can lose all your money. This is an investment. Investments have risk. There is no investment that’s without risk. So I again catch them off guard by their biggest concern being they’re going to lose all their money.

Their biggest concern is I’m the next Bernie Madoff. You’re the next Bernie Madoff. Catch them off guard, right? That’s called a pattern interrupt. Use a pattern interrupt to change their thinking. Say, yeah, worst case scenarios is I’m the next Bernie Madoff and you’re going to lose all your money. Ha ha ha, but hey, I’m not the next Bernie Madoff, you don’t have to worry about that, but you can’t lose all your money. Because if we don’t hit our projections, if we don’t hit our performance, if we don’t meet all the criteria that’s in the proforma and make this deal work, the operator is the person who takes proformas that become profits, okay? So if you want performas to become profits, you got to have a great operator. So what I do tell them is the downside, what you’re really investing in, whether you’re investing in residential, multi-family or private lender loans, a fund, whatever, what you’re really investing in is the operator. The operator that’s operating the deals, that’s running the business, the boots on the ground, the guy that’s in the dirt doing the deals.

That’s who your investing in, okay? And if you select good operators or you have somebody select good operators for you, that’s going to extremely limit your risk, okay? Number five, you’re experience. So again, your either have to have experience like I have, or you have to borrow experience from a joint venture partner. Borrow credibility from somebody that you’re going to do deals with, okay? It’s very important to have experience. Now, if you don’t have experience, you can do what I did. What I did is I paid more in interest. I paid my private lenders 18% fixed interest when I took out my first private lender loan, okay? That’s since been long paid back the interest and the principal all paid back and we’ve paid them back in droves, okay. So and matter of fact, it blows my mind when I have a private investor who’s made a ton of money with us and they want to go do something else with their money.

It almost never happens, but when it does happen, I’m like, what are you nuts? You can get an 8% 10% 12% 15% return on your money for three, four, five years. Why would you ever bother considering another option, right? The grass is not always greener on the other side, okay? I’ve had people that have invested in my deals and made a tremendous return for two, three, five, 10 years. Then they left and said, well, I’ve got a friend that needs money for a flip. I’ve got a personal deal that I want to do. That deal goes to hell in a hand basket and they lose a significant amount of money and they’re like, shit, Josh, I wished I’d never left. No kidding. I know you wish you never left because I’m a good operator, okay? And so those are some of the most frequently asked questions that we get from private investors.

You’ve got to have fun with it. Got to be ready to answer those questions. Number one, minimum investment, two what’s the exit strategy? Three one, when can I get my principal back? Number four, what’s the downside? Again, focus on the operator. That’s why they’re investing in an operator. Number five, experience and use the question. The final kind of bonus question that you’re going to get is, can I lose all my money? Is this another Bernie Madoff scheme and say, yeah, so the downside is what if I’m the next Bernie Madoff, $50 billion, Bernie Madoff, $50 billion, $50 billion with a B, people’s money disappeared in a Bernie Madoff scheme, right? Guy died lonely. I don’t know. Is he dead? I don’t even know if he’s dead. Did he die? I’m asking Ramy. He’s still in prison, but he’s lonely. He’s depressed. His son committed suicide. It’s not worth it, right?

So you got to be an amazing operator. When you take people’s money and you use it, you got to take that with the utmost amount of respect. Matter of fact, when I was talking to Kevin O’Leary at our event in 2016 2017 he said, look, when you decide to take investor capital, you are no longer your first priority. You are no longer the number one priority. You are no longer the number one person, you work for your investors. You’re the CEO, but you are responsible to and you are accountable to your investors, okay? They’re the number one priority, not you getting them a return is the number one priority, not you going buying Ferrari’s and Lamborghini’s and a 10,000 square foot house. Trust me, none of that really matters anyway, what matters is relationships. What matters is experiences, and when you decide to take on investor capital, you have an opportunity to grow an abundance of relationships and abundance of capital and abundance of businesses an abundance of connections and abundance of relationships. If you are a good operator and take care of people’s money. Is Bernie Madoff dead or alive?

He’s still alive. He’s incarcerated at a federal correctional complex in Butner, North Carolina up for release. November 14th, 2139.

2139, up for release, 2139 that’s 120 years from now, 120 years from now. All right, so you’re not the next coming of Bernie Madoff. That was a fun discussion. Thanks so much for joining me on this version, this episode of accelerated investor. Don’t forget to join our private Facebook group online. Go to Facebook search Accelerated Investor, jump in the Facebook group. We have an amazing group. We’ve got over or close to a thousand members also, you know, we’re getting thousands of downloads every single week of this podcast. We’ve got hundreds of ratings and reviews. It would be my honor, I would be so grateful if you could go into iTunes and leave us a rating and leave us a review. Leave us a thumbs up, spread the word, share this on social media platforms. Let other people know that Accelerated Investor has impacted your life and what it can do for them. Thanks so much for being here. We’ll see on the next episode, take care.

You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.

Since the passing of the JOBS (Jumpstart Our Business Startups Act), the access we have to private money has skyrocketed, thanks to new crowdfunding platforms and 506(B) offerings. As a result, I’ve seen a marketplace of business owners appealing more and more directly to the private investor. In many cases, success and failure depends on how good you are at appealing to those investors.

At Accelerated Investor, we like to reach out to our community to hear the questions on your mind. One I’ve heard often is “what are some of the most common questions that private investors ask?” This episode, I’m addressing some of those questions; helping you put together the approach you should take when you’re in those all-important talks with private investors, trying to get them to invest in you.

After hundreds (maybe even thousands) of meetings with private investors, over $5 million of investment capital, and over 250 private investors that I work with directly, I’ve decided to help unlock the mystery of how you deal with this all-important audience.

With this podcast, I’m taking a closer look at the most common questions I get from private investors and how to answer them, including: “what’s the minimum?”,”what’s the exit strategy?”,”when am I going to get my principal back?”,”what’s the downside?”,”what’s the upside?”, and “what’s your experience?”

Beyond that, I’m going to share a few tips you should keep in mind when you’re dealing with private investors. This includes how to build the network that leads you to them in the first place, and the one question that’s always great for breaking the ice and getting that conversation started in the first place.

What’s Inside:

  •  I address the five most common questions I’ve received from investors and how you’re going to answer them.
  •  I look at some of the “wrong answers” and why they’re likely to get you into bad investment relationships.
  •  How do the SEC rules on pre-established relationships affect how you get investors?
  •  One question that will never fail to break the ice with a potential investor.
  •  I reveal how you can get people on your side by answering “what’s the downside of this investment?”

Mentioned in this episode​

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