Reporting: How to Keep Your Investors Happy

Many of us have managed properties that involved investors we recruited to a project. Let’s face it: not every investment goes perfectly as planned. Problems arise, and enthusiasm dissolves. As the manager, it is always your responsibility to keep every investor fully informed on both good and bad news.

I have learned these things in reporting:

  • Communicate, Communicate, Communicate: Unhappy investors are worried investors! Worry generally comes from the unknown. So, if everything is going well, communicate regularly. I like monthly reports no matter what is happening. If the property or situation has problems, communication should increase dramatically. Small, short narrative emails or letters giving an update helps a bad situation. Always give the truth, and do not minimize the problems. Tell investors what is happening and steps to fix any problems, and then give regular, maybe weekly, reports on progress until you are on track. Always encourage input of ideas and feedback from your investors! Do not ignore their ideas. If their ideas are not feasible, explain your reasons for taking a different approach.
  • Brief and Informative Financial Reports: I believe most investors like monthly financial reports. It is my experience that too many managers give reports that are originally designed for tax reporting purposes. Balance sheets and standard QuickBooks reports may not be easily understood by many investors. (Include these as year-end for investors’ tax advisors.) Recognize this limitation and adapt.
    • Monthly financial reports can be brief but should include these:
      • Beginning monthly bank balance
      • Total itemized income for month
      • Total itemized expenses for month
      • Net operating income for month
      • Less monthly mortgage payments
        • Include beginning monthly principal balance
        • Include ending monthly principal balance
      • Less net monthly reserves balance—real estate taxes and property Insurance
      • Less net employment tax reserves if needed
      • Less monthly reserve for repairs and maintenance
      • Net cash flow for investor distributions:
        • Show individual investor distributions with percentage ownership
      • Ending monthly bank balance (this will include all reserves)
    • Be completely transparent. Many managers send copies of bank statements for investors to review, or you can easily give online bank account “view only” access.
    • All income/expenses and bank balances should be perfect to the penny as of the date of the report. In my state, third-party real estate broker-managers do this automatically. Trust accounts are required, and the law requires a trust account to balance daily, or one’s real estate license can be revoked. Completely open financial records give your investors confidence and generate trust, even in a bad situation.
  • Budgeting and Forecasting: Every investment should include monthly performance projections. Annually, all investors should be given a cash flow budget for the next year and even longer. Every month, your report needs to explain any deviation from the expected budget. Once the manager builds a sound cash flow budget spreadsheet, it is relatively easy to adjust after each month’s performance. Do not wait to year-end to adjust; make changes to the monthly projections as conditions and performance changes. This also gives your investors confidence!
  • Historical Spreadsheet showing historical numbers: This is my favorite report; I can look back at least one year to see investment income and expenses as a comparison to determine progress or decline.

If you are the broker-manager for projects, I believe these ideas will help. Always treat your investors the same, big or small! If you communicate correctly, your investors will understand as the project prospers or develops problems to fix!





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