Key Parts of an Investment Memo

An investment memo is a document outlining the specific objectives, risks, and terms of an investment opportunity. Companies issue investment memos in order to attract and demonstrate organizational strengths to potential investors. This post outlines the key components of an investment memo, and why these documents are valuable resources for investors.

What Does an Investment Memo Include?

Key provisions of an investment memo include the following:

  • Disclosures: The first page of the memo should list legal disclosures regarding the investment and the company. Disclosure topics may include the inherent risks of investing money, the company’s liability, and reprinting permissions.
  • Overview: Also known as an executive summary, these pages introduce the company’s vision and investment rationale, as well as the subject property(ies).
  • Property description: An investment memo should include a detailed description of the subject property and its current state. An overview of the units, square footage, construction specs, location classification, and other pertinent information should be included.
  • Repositioning Strategy: This page explains how the investment funds will be used to improve or enhance the property and increase cash flow.
  • Markets and marketing factors: The memo should address the market, including both local and regional trends. Key things to consider: market rent growth, vacancy, median income, population growth, employers, amenity map, and other demographics.
  • Financial projections: These pages include forecasts for the investment’s overall financial performance, as well as a detailed look at projected cash flow and expected returns/investment return sensitivity.
  • Risks: Risk factors may include direct and indirect competition, factors that could reduce demand, and issues that could potentially disrupt the business strategy (such as a poorly performing economy). Experienced investors understand every investment carries certain risks. For this reason, memo issuers should be as thorough as possible in this section of the document. To balance the risks, some memos also list some notable strengths of the investment.
  • Terms: Once introductions have concluded, the memo should directly address the memo’s specific terms for investors. These include funding and distribution structures, the round size, and procedures for reporting taxes. 
  • Sponsor background: Organizational leaders often conclude the memo by listing the credentials of founders and team members who will be facilitating the investment. This section may also include a quick overview of the company’s history.
  • Appendix: Lastly, most memos include images, graphs, and other materials that reinforce the information provided elsewhere in the memo.

Why Are Investment Memos Important?

A well-written, accurate investment memo benefits both the issuer and the investor. Investors use memos to attract certain partners for real estate projects that require high amounts of capital. This allows the company to be more selective when it comes to choosing a funding source.

For investors, memos are essential because they provide a detailed overview of what to expect from the investment. Investors use this information to perform due diligence and determine risk – helping them make an informed decision about the investment.

What’s Bullpen?

Bullpen helps real estate professionals create investment memos! Learn more here, or contact us to set up a call!

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