In this episode, David interviews Mark SA Smith from the BIji Company. Mark is an expert on business growth and consults as a business growth strategist all while investing in large multifamily properties. Mark specializes in how to find and how to sell to passive investors so he can raise the funds he needs to do his deals. Mark shares a list of 8 common things that he likes to focus on when he is selling his deals to investors. He also shares some gold nuggets on how to sell to the spouses of these investors
David: Alright guys, welcome back to the Discount Property Investor podcast. I am your host David Dodge. My co-host Mike Slane is in the field again. I haven't had him on the show in a couple of weeks, but he has been busy buying us rentals and keeping this machine running. Today I have an awesome guest, Mr Mark SA Smith, who is with the Blji company, and he is a business growth strategist. Mark, how are ya?
Mark: I am doing great, David. So good to be on the Discount Property Investor show. Let's make out listeners some money today!
David: Let's give them some gold nuggets, I love it! As the listeners know already, Mark, we are a real estate podcast that focuses on buying properties at a discount. That is what we love to do. Now we all know that you get paid when you sell, but you make your money when you buy. If you are a new listener to the podcast, just know that you get paid when you sell, but you make your money when you buy. Alright--.
Mark: That is absolutely true, and that is true for every investor.
David: That is so true, it doesn't matter what you're doing either. I love it. So Mark, today we are going to dive in to-- on a really specific topic that I love, I am near and dear to this topic here. This topic is going to be marketing and selling passive investors, or another way to describe that would be how to find passive investors and sell these individuals. I hear you are an expert at this.
Mark: I sort of developed the expertise over time. My expertise really begins-- I have learned how to sell expensive complex things as fast as humanly possible. Expensive and complex defines what investors invest in. It's expensive because they are looking at parting from 25 to quarter of a million dollars for the typical private equity investor into a real estate deal, can be more, but that's a typical thing our listeners might want to get access to. It's complex in that you have multiple decision makers. So, David, who do you think is the ultimate decision maker when an investor decides to put money into a real estate project? Who do you think it is?
David: Their spouse.
Mark: That's right! Well done!
David: I know my number one decision maker is the wife!.
Mark: That's exactly right, it is the wife. There are two other decision makers that have to be involved and that would be the CPA and the accountant and the lawyer.
Mark: There may be a fifth and that would be somebody that's involved in a trust fund. But, you are absolutely right, it's the spouse. The problems that most people who are seeking investment, they are seeking capital for a deal don't know how to sell the spouse.
David: I agree, completely agree.
Mark: Would you hand your spouse a private placement [00:03:51.06 - inaudible]?
David: No, she wouldn't even open it, she wouldn't know what she's looking at, she wouldn't care.
Mark: She would be like, what the hell is this? No, I don't understand it, no!
David: You are absolutely right.
Mark: What your spouse needs to understand is-- is this deal something I can talk to my friends about over a glass of wine? Is this is going have any impact on my lifestyle?
David: Absolutely, you nailed it. Those are the main things she is going to-- yeah absolutely.
Mark: Right, am I going to be embarrassed by this deal? One of the challenges is, if the spouse sees a picture of the property and says, no way am I going to tell my friends about that piece of crap.
David: That's right. So true.
Mark: What we have to do, and part of the strategy of finding and selling to an investor is you have know what the yes criteria is for all those people involved in the deal. Let's just pop up a level because we just went deep really quick.
David: Yeah sure.
Mark: Your listeners are going-- yep I need to figure out how to-- we will share the secret, I will tell you the secret of how to sell spouses before we are done with the show, okay?
David: I can't wait.
Mark: Alright. That's how we are going to keep them listening to the end, I guarantee that.
David: I'm going to be here to the end just because of that.
Mark: When we are talking about investors, first thing we are talking about here is private placement, private equity placement. So this is going to be under the SCC rules, 506B or 506C. You have to confirm with certain standards to make sure you don't get thrown in jail or granted a bad actor is the word the SCC uses, which means you are banned from raising funds, you have to do this right. It's not too hard, there is actually a letter that the SCC outlines how to behave, and fundamentally we can work with a certain number of unaccredited investors, you have probably talked about that on your show in the past.
David: Uh huh.
Mark: You can mark it for accredited investors as long as you don't present the deal details to the public. So you can actually reach out and say, hey we are doing this project, would you like to learn more money, they come through to your website, they learn, you learn and make sure they are accredited, then you can present to them the deal details. That is completely legal now under the 506C regulations.
Mark: So that's the basis under which me talked-- I just want to make sure it is absolutely clear, that is the boundaries in which we are speaking in. You have to follow those rules.
David: Sure, sure.
Mark: So let's talk about somebody who has money to play. Typical private equity investor is in one of three categories. You have got-- they are typically males, about 90% of the time they are males. This is just more traditional, nothing to do with sexism, just tends to be in a lot of relationships the guys look after the money. It doesn't mean women can't be involved, we are just talking in general.
David: Just in general, of course, I get it.
Mark: Alright, great. So most people who are going to do private equity, they start when they are in their 40's.
David: Do you mean raising, or investing?
Mark: That have money to invest.
David: That have money to invest. I have to say, that's very accurate.
Mark: So they start in their 40's, and they have a specific goal for their investment, what has been that goal for you?
David: To make it grow.
Mark: Right on, they are looking for capital appreciation. They don't need income, they just need capital appreciation. They would like to have some capital preservation, obviously you don't want to lose the capital, but they are willing to trade some risk for reward, but it is primarily capital appreciation. Those-- from the 40's to mid 50's, those investors are looking for capital appreciation. Those are the people you approach for the deals where you are looking to bring in capital and hold it for 3, 5, 6, 10 years.
David: Uh huh.
Mark: They will say yes to that.
Mark: Starting at age 55, the investor shifts a little bit, and what they are looking for is a balanced combination of capital appreciation and some income.
David: Okay, yeah that makes sense.
Mark: So they are looking for a little cash flow, the cash flow is to augment their cash that is coming in. It could be to put grandchildren through college, or kids through college, or to buy that RV, or to buy that second house. Smart investors buy toys with investment income, not personal income.
David: Love it.
Mark: It is the only way to have a sustainable wealthy lifestyle is to spend the investment income, not your personal income, to best your personal income. We are on track here, we are absolutely on track. You have to offer them some sort of deal that is going to have both some of the level of income, you don't have to pay it every month, you can pay it quarterly, as well as capital appreciation. Once people hit about 65 or so, they are going to be looking for income and capital preservation.
David: Yep, absolutely. As people age, they have a different goal, so you have to have a different plan, or they need to have a different plan to hit those assumed goals. Absolutely, I follow.
Mark: So the whole idea behind this conversation is one size does not fit all investors. You have to understand that if you are going to put together an equity deal where you are not expecting to throw off cash for a few years, maybe targeting younger private equity investors. If you have something that can throw off a lot of cash, then you are going to be targeting older private equity investors. That changes the conversation you are going to have. So fundamentally when you talk to a prospective investor, you meet at a networking event, or you call up and say, hey I am looking for someone to put equity into my deal, would you like to have a conversation about it? You have to understand that the capital structure you're putting together is going to depend on who is going to respond to that.
David: Uh huh, that's a great point.
Mark: The first thing you have to understand. The second thing you have to understand about investors is-- not only do they go through the process of deciding if you're worthy of the investment, because you have the experience, you have a deal that matches their investment strategy of whatever class of assets they want to invest in, but it also has to do with funds and timing. Investors don't have a quarter of a million dollars sitting around in cash waiting-- what you have to essentially do is cue up the timing for that. If you are looking to raise some money, you have to give yourself some runway. If your [00:11:12.13 - inaudible] doesn't start pounding the phones, very few of those folks you're going to talk to are going to have some cash laying around--.
David: Right, right.
Mark: It's a combination of assets that they have that are becoming available, so they are coming out of a fund, or they have sold a house and they want to place that money with something, they are deciding they want to take their 401-k and turn it into a self directing 401-k ad so something with that money. There is a whole series of trigger events that make cause them to be out looking for capital. Your job is to be out in front of that.
Mark: Your job is to create a relationship with them so that when you have a deal coming online you say, hey Mark, we are going to be doing some fund raising on this asset class, is it something you want to consider? Let us know, so you can get in front of the fact they have some money becoming available.
David: Uh huh, I love it.
Mark: Just understanding that-- for a lot of times if an investor says no it's a matter of timing, not so much a no to you, just no not right now.
David: Right, and that makes sense. Everyone is going to have different scenarios going on in their lives and what not, makes sense.
Mark: Right on. So the thing we have to keep in mind is we have to put together a plan that is going to attract investors. The way most people do that is through networking. You go out and say, what do you do for a living? Well I do real estate development, right now I am doing it in wholesaling which is a great place to start because you learn a whole lot about real estate really fast without a lot of money required, but you may want to do something, you may want to do some fix and flips, or you may actually want to put together a multi-family project, or you might want to partner with someone who is doing those kind of projects as you grow your skills. Discount property investing is a great way to start this process.
David: Sure, absolutely.
Mark: We are giving you some insights on what is the next phase of how you make money.
Mark: The next phase is you are going to meeting people and say, hey I am in the real estate development world, always looking for investors who want to partner with me. Is that something your would be interested in finding more about later? We don't have any deals going on right now, but we can keep in touch with you. Yeah that sounds great. Alright excellent, I will let you know when we have some things that are coming along so you can consider it. Okay, then you have to put them in some sort of campaign to make sure you stay in touch with them.
Mark: That is part of how you market to find them. Fundamentally as you build your passive investor list, you are going to fundamentally go through four phases. One, is people you know, let them know. We have these deals, you can invest with us, then people they know, simple referrals, right? And then out of that it's going to people you are going to be attracting, such as the podcast you are on right now. So a lot of people doing this sort of thing create podcasts, or write content, or put out advertising. There is actually a lot of passive investors that are out there. I was just talking to a guy who does specific work to identify credited investors. He says, Mark there are 50'000 accredited investors a week looking for a place to put their money.
David: Wow, that's a ton of people, man.
Mark: A ton of people, 50'000 a week that are looking to place money. There are a lot of ways we can figure this out. The final one is that you might advertise and just let people know you have these deals going. So we have multiple ways that we can pour people into your investment marketing to find them.
Alright, so let's talk about-- once they say, hey we're interested, you place the [00:15:10.05 - inaudible]. This is-- I want to share with you how investors have to look at this decision. Number one is, do they need to invest? If they don't need to invest, they are probably not interested in a conversation. They need their money to work as hard as they do is going to be a driving factor.
Mark: Second thing they are going to look at is their return versus risk tolerance. That is going to be a combination of their age and their personal needs. So for example, if you have an investor who is in their mid 40's and have a special needs child who needs $10'000 a month to look after them, they are going to have a different requirement to an investor who right now is throwing an extra 10'000 a month off that they are looking to invest.
David: Right, absolutely, I follow.
Mark: Right, so then the third thing is an alignment with their investment goals, and we just talked a little bit about that. The fourth is their familiarity with their asset class. Do they understand single family houses? Do they understand class A multi-family, class B multi family? Do they understand commercial investing? They need to have a comfort level with the asset class you're offering. Of course the way you find that is you talk about it. Where have you placed your money? What has been your experience with that? That's going to help you get an idea as you talk to investors where there is an opportunity for you to do some development because money is available for that development.
David: Uh huh, okay makes sense.
Mark: The fifth thing is their familiarity with you. They are going to do their due diligence. What they want to find out is, are you-- experienced or are you partnering with somebody who is experienced?
David: That's a big difference there, that makes a lot of difference.
Mark: Huge. If this is your first deal and you are out looking for P.E, you better be partnering with a proven operator. You are working off their reputation versus your reputation.
Mark: Partner with somebody. Go out there and find an operator that needs some funds. They will give you a piece of the G.P in exchange for the fund raising. Now you're experienced. That's-- that familiarity with the offering firm is a really important aspect. Number six is their advisory team support. We talked about that at the beginning of the show. You've got an accountant, you've got an attorney, you have got a spouse potentially, somebody in the trust business if the money is in a trust. So let's talk about that for just a moment.
Mark: If you're looking to raise private equity, your first close is to get them to say, yes I will consider it, yes I will put your private place memorandum in front of my advisers. That's a start.
David: That's step one.
Mark: That is really step one to closing the deal. While you're thinking about this, I know you are not ready to do anything until you get advise from your team. If it's something you're considering, let's get the documents in your hands so if you think you want to move forward, that your accountants and your attorneys are not a bottle neck to you pulling the trigger when we are ready to take your money, when we are read to receive your funds. We don't say 'take your money', you don't say 'take their money', right?
David: I get it, makes sense. Whenever we collect it to invest it.
Mark: When it's time for you to wire the funds, right? If they agree to taking the private placement memorandum, and presenting it to their review team, then that's the first yes.
David: That is a yes, absolutely it is.
Mark: And you are not going to get the check until they have gone past that team. Let's just make that part of our process.
David: Such a good point. I love it.
Mark: For our spouse, we are going to hold that off till the end of the show, make sure you give me the high five when we are getting close to the time so we make sure we deliver that promise. Number seven is a little bit of a surprise for a lot of people. That is their peer opinions.
Mark: When they are out playing golf with their buddies, they are saying, hey I'm thinking about investing in this particular real estate deal and everyone says, don't do that. Are you kidding? Single family houses, you got taxes toilets and tenants, the horrible three 'T's'. I wouldn't do it. You can get somebody who doesn't understand the deal killing the deal.
David: Yeah absolutely you can.
Mark: The way we handle that is we have to inoculate it. You have to have a conversation before they talk to their peers. Hey, one of the things I see frequently happen is someone will discuss and asset class with somebody who has limited experience in that asset class and they turn them off. So as you share this with your buddies, expect to get some push back.
Mark: I want to make sure that you are fully grounded in understanding why this asset class makes sense for you at this point in your investment strategy. If you have questions or they raise concerns, let's talk about them. This is a well thought through investment, and I bet we have solid answers. You have to inoculate against that golfing buddy shoot down.
Mark: The eighth thing we already talked about is funds, when will the funds be available. So those are the eight steps we have to go through when we are working with an investor. It sounds like it's complex, but we are going to be collecting five and six figures from these people.
Mark: It's a lot of money but it's worth it.
David: It is worth it.
Mark: From what we have talked about so far, give me a little feed back on how this fits into your experience.
David: It fits very well. We have some private lenders that we work with, but they are really short term. I am not syndicating for a deal. It sounds like this is more of an approach for a longer term investment which I love. But it all makes sense. The way that you described it step by step is awesome, because that is essentially the flow in which you are going to go from zero to having an investor lined up. Skipping any of these steps along the way is just-- essentially going to have to make you go back.
David: So if you do them all in order, the way that you are teaching or talking about; it actually looks really clean, like it would be a nice clean line versus just bouncing all over the place, which I love.
Mark: Alright, excellent, I think you nailed it. David, you absolutely nailed it. Here's the point, a lot of people start off with fundraising, and they pitch the deal like they are selling a house. You can't do it that way, the deal for private equity investors requires this flow that we have discussed.
Mark: What happens is that they make a lot of mistakes, then they don't like fundraising because it's hard, no it's easy if you get these steps in alignment. Really the whole idea behind this conversation is to let you know that if you're ready to go from where you are with wholesaling and add another layer, wholesaling is really the first step to doing your own deals.
David: Right, absolutely it is.
Mark: This is what generates your knowledge of what is value, how to generate value, and you have got that first step nailed. Now, how do you take that first step to making more money? Wholesaling can only create a certain amount of money. So this is really-- what we are talking about is how do you take those next steps. We are giving them a long view here of how all this works out.
David: Uh huh. I love it, I think it's awesome. By having it be step by step, you are going to alleviate a lot of concerns this person is going to have, but you are also going to prevent them going MIA on you, or just getting up to the last bit in time to where maybe you are counting on their funds and then they say, no I am just not sold yet. But, by going through this particular process, you kind of handle objections along the way--.
Mark: They are not objections.
David: They are not objections either--.
Mark: They are just concerns.
David: Concerns, right. But you handle those along the way to where once you get through all-- essentially steps, not only do they feel comfortable with you, but you feel comfortable that they feel comfortable. Which is very important.
Mark: You are getting married to an investor.
David: That's true.
Mark: A divorce from an investor can cost you more than divorcing your spouse.
David: That's right, it sure can. I know that first hand, yes it can.
Mark: So you have to do as much due diligence as they do.
David: Uh huh.
Mark: As we step through these steps, you are going to get a really good idea about their personality, and find out if this is someone you want to partner with or not.
David: Uh huh.
Mark: So realizing that it's a marketing job, and marketing is about conversations.
Mark: A sales job is transaction, but the transaction comes after you have the advisory team support.
David: Yep, absolutely.
Mark: Once the advisory says this look great, you say, how about it? How much do you have to place? When are those funds going to be available?
Mark: That's the close.
David: And that's it. It's actually very simple, and I like that you simplify it. I've had a couple of people on the show in the past that do syndication. But, they don't have it broken down simply like this. Theirs is more-- well you know, you go out, you find a lot of little guys or a couple of big guys, you ask them to lend you money, then you get the money and you go buy the deal. It's like the Seinfeld episode, you yada yada over the best part, you know? But I love how you break it down, and you go through all of these steps. You have eight steps here and it's super fascinating, Mark. I am intrigued and I like it. Where can the audience, the listeners, the viewers, where can they go to learn more about not only you, but about what you teach and how you can help them learn more about this?
Mark: Alright great. What I just shared with you is-- comes from a course called Marketing For Passive Investors. Not only do we market but also how to sell them. It's the whole complete package. This is a full day event that I have done in conjunction with a syndication and fundraising event here in Las Vegas a few times. So we video tape the entire day, it's chopped into 24 modules. So you get everything, the one you get to see was presented in front of a group of hedge fund investors, syndicators, real estate investors. So they are asking the questions, I am giving them the answers. I am laying out for them step by step how to build this plan, so you attract investors, you sell them. I guarantee, you are going to get extraordinary insights from what I talk about in this class. So learn more by going to OnDemandu.com. on demand university dot com.
David: That's the letter 'U', not Y.O.U, just 'U'.
Mark: That's right, the letter 'U' is what it is.
David: Is that the only course there? Or are there multiple and they would need to find it?
Mark: Right now that is the only-- course that's featured. You're gonna find it, it's the front page.
Mark: Check it out. Not only do you get access to the course, but you also get access to me.
David: Oh cool.
Mark: I give you 20 minutes as part of a course to have conversations, to ask me questions, to trouble shoot challenges. So you-- I don't leave you hanging. You get to work, you get the forms from the SCC that allows you to do this. There is a lot of great information there. It's something I think you might find extremely interesting. There is a way for you all to play.
David: Hey, I am super excited about this. OnDemandu.com. Guys, check it out, Mark has an amazing course and it is all about finding and selling passive investors. How to find them and how to sell them. Now Mark, you mentioned earlier that you were going to tell us how to sell the spouse. Man, I am still--.
Mark: Let's fulfill that promise right now. David, the secret is a deal documentary. You shoot a video about the deal. So you come in and you do a tour. You hire a college kid to fly their drone over the deal, you have conversations and interview past investors. So essentially you put together a three to five minute deal documentary--.
David: That's short.
Mark: Doesn't take much.
David: Yeah that's quick, man.
Mark: Doesn't take much. You don't talk about anything other than what the deal it is, how exciting it is, and how this is perfect for the neighborhood. How you are going to improve people's lives. You sell the outcome versus the value of the investment. Remember with the spouse--.
David: Sell the outcome, I am going to repeat that again, guys. You sell the outcome not the deal itself, the granular stuff.
Mark: Don't care.
David: Sell the outcome. Man, that's beautiful.
Mark: Once you create this deal documentary you can put this on your website. You are not making an offering with the deal documentary. You are just saying, here is the deal we are working on.
Mark: If you would like to have a conversation with us about this particular project, then click here.
David: Yeah or call us or whatever, yeah.
Mark: That's right. The first thing you do is make sure they are an accredited investor. You go through that, and we talk about all of that in the course.
David: Man this is exciting, this is exciting.
Mark: Isn't that cool? Do you like it?
David: This is neat, I am looking into the course for sure, this is super exciting. How to sell a spouse, a deal documentary, guys, it is basically just a short quick video. Mark said somewhere between three to five minutes, talking about the deal, but also showing how exciting it is. Again, selling the outcome of the deal, not the actual deal. Show that there is money to be made from these investors in terms of cash flow or in terms of equity or both, or a payback date with interest at a future time. Whatever that might be, sell that outcome. Man, Mark, Boom!
Mark: Boom! Just that easy, isn't that cool?
David: It is, that is very cool. Love it.
Mark: This has been great, a great conversation, David, I appreciate your insights and all the things you do for your listeners, awesome.
David: Hey, Mark, thank you so much for coming on the show today, much appreciated. Guys, if you want to check out more about Mark, whenever you are Googling Mark, make sure you are Googling his full name, Mark SA Smith. Mark is a business strategist, he is that Blja group, the Blja company. He is going to teach you guys how to market and sell these passive investors, so you can take or use their funds to help build your own portfolio. All these deals are win wins, guys. Not only are you going to be able to provide a positive rate of return to these investors, but you are going to be able to use their money as leverage to get yourself bigger and better deals, so you can obviously build out your own balance sheet and net worth statement as well.
Mark: Let me tell you, investors need you as much as you need them.
David: I love it, that's such a great point. Well guys, I am just as happy as I can be to have Mark on the show today. Mark, thank you so much for coming on. One more time, if you guys want to learn more about Mark's program, his course, check out www.OnDemandu.com, or you can just go straight to the Google-- and type in Mark SA Smith. I am sure that you will find Mark on there as well. Mark, thanks again for coming on the show, I know I got a lot of value out of this, and I am positive that the listeners and the viewers are going to get some value out of this well. Maybe in a couple of months we can circle back once I have got through the course and I have already raised money for a couple of deals that I am working on now, maybe we can do another interview with you, and either do a success story or just a follow up.
Mark: Indeed, I have lots more.
David: I love it. Alright guys, Mark, thank you so much for coming on the show, we are going to wrap it up with that. One last time, guys. Check out Mark's course OnDemandu.com. Mark, thanks for coming on the show, we are going to sign off on that note right there.