Self-awareness about what you sell is a superpower.
The overall idea here is obvious, but there is a lot of nuance around how real estate investment terms are set up that I’ve found worth exploring as I set up terms for my first major raise.
The obvious.
If you’re starting out, you can’t ask for the same terms as an industry veteran with a low cost of capital and/or a long track record.
First, gaining some self-awareness and an understanding of your market is key.
For example:
Is this your first deal?
What are you offering that is truly different?
What does your track record look like?
Extending that awareness to the type of deals you show investors is also crucial since addressing the risk of what you’re proposing with the terms of your agreements demonstrates both proficiency and wherewithal.
These are probably two qualities that investors value (at least the kind of investors you want to work with long-term).
What are the market terms for the type of deals you’re looking at?
Why should your terms be different?
For example, if you’re dealing in a highly specialized niche and the team required to execute needs to be structured or compensated differently than usual, that should be reflected across all agreements— from consultant contracts to LP documents.
The less obvious.
It’s not only about where you are professionally or your skills and differentiators.
It’s also about who you want to be.
What is the purpose behind the terms? What are you about? What do you aspire the deal to be about? What kind of team do you want to lead?
The main objectives of the terms I have drafted are:
To maintain control over project vision and execution.
These are two of my main differentiators and where the bulk of my experience lies. Giving up control would defeat the purpose of my involvement.
To cover the costs of the team needed to execute.
This is the other aspect I have significant experience with. I know exactly how much it would cost to run the team, and since this would be my first deal, I’m not looking for fees beyond the cost of running the team.
To get the deal done.
Aside from the two points above, all other terms are negotiable. While some would warn against this approach, I have enough clarity on the approach that I’m comfortable discerning when a negotiated term would affect these two non-negotiables.
This is the best approach for me, but everyone’s circumstances and approach to agreements vary.
Looking at how other people structure deals can be helpful, but it’s only partially helpful if the context behind the terms isn’t examined.
The most important part of setting terms is that they fit the offer.
This means self-awareness, vision, and consistency are required.
Growing.
The good thing about terms is that after completing a deal, you can take the lessons learned, reassess your position, and set terms for the next deal.
Relationships, market conditions, your track record, and every other aspect of who you are in the world may be totally different by the time a project is done— so it is only fitting to reassess whether the next deal’s terms should or shouldn’t be the same.
In addition to our development work in NY, MADDPROJECT provides fee development and professional project management services across the US.
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