What interest rate do investors want?Feb 28, 2022
Should you offer investors 5% or 10% return for your deal?
This may sound like a straightforward question...
But if there's one thing that's not always simple...
It's figuring how much you should be offering your investor without feeling you are giving away too much.
Here are some important things for you to keep in mind when deciding what to offer:
1. Do your research
One big thing to consider is your competition.
Find out what the market is offering.
What alternatives will your potential investors weigh up to compare your opportunities?
So you need to think of the bigger picture when setting your returns...
It's not just about perceived value and the work you put into it...
It's also about what other options are available for investors.
Will they want to invest with you if they can find much better returns elsewhere?
2. What are the risks of the project?
Each project comes with its own set of risks...
And there is a direct relationship between the risk and the rate of return.
To put it simply, the riskier it is, the higher the rate of return should be. And vice versa.
These two go hand-in-hand, and are major considerations for any investor looking at a deal.
So, in order to work out the rate of return you should be offering, work out the amount of risk you are asking the investor to take.
Relatively low levels of risk will mean that you can offer lower returns.
And relatively high levels of risk will mean that you will need to offer higher returns for it to be attractive.
3. Treat your investors the same way you would like to be treated
It's human nature to want to offer as little as possible so that you can keep the rest.
That may work if your investor completely trusts you...
Or is too lazy to do their homework...
But what happens when your investor decides to do a bit of research and finds out that you are paying them way below market rate?
What do you think will happen to that relationship?
Do you think they would want to re-invest with you?
Offering a rate of return may sound like a simple thing to do...
But as you've read, it's not quite that clear cut.
But by considering all the points we've outlined above...
You can make a more informed and logical decision that will make your offer an attractive prospect to your target investor.
Bottom line, aim to always be fair, transparent and professional.
That approach inspires confidence and it's how you win investors over!