When you are walking deals with brokers, asking the right questions about the property, the sellers, and the brokers themselves is important not only to learn about the deal but to building rapport and establishing credibility that you can perform and seal the deal.
Let’s get into what you can do and say to get the brokers’ trust and build credibility so they can take you seriously when discussing a property.
As I tell my students all the time, you don’t have a second chance to make a first impression. Building credibility with brokers and not being labeled a “newbie” is important to do out of the gate. Aside from understanding the language of the business, such as NOI or DCR, there are certain questions a new investor should ask when talking to a commercial broker.
But let’s say you get past all that and now you are touring a property. The questions you ask will demonstrate that you are an able and serious buyer. So, let’s get into them:
1) When did the property sell last and for how much?
You want to get insight into what the broker knows about the asset they are selling. If you already know the property sold 6 years ago, but the broker tells you 11 years ago, either the broker doesn’t know or you are not getting the full story about the property. Or, if it only sold 15 months ago and now they are unloading, you want to know why. With this question, you are trying to gauge how forthright the broker is with the information on the property. All this data is available via public sources or your broker can even pull a Costar report that will provide that info and even tell you what the financing probably looked like. Ultimately, you need to determine how credible the selling broker is and if he may try to snow you down the road.
2) What is the upside on the deal?
You want to know what is the play to boost revenue or trim expenses. Invariably, the broker will always say you can increase rents, but you want to push for specifics. Ask them, “What makes you think you can boost rents?”; “Do all the units need upgrades?”; What sort of upgrades are appropriate for the area?” You want to understand not only what the broker knows about the area, but to also understand what the value could look like once you start operating the property.
What are the first things I think about when I’m walking a property is how I’m going to get out of it. You will want to ask the broker:
3) What is the exit strategy?
This may be a 60 unit deal and the current owner rehabbed 20 of the units to bump rents. You may choose to do the same thing. You may want to rehab another 20, bring up NOI through rent increases and sell to the next person. Let the broker tell you what they think the strategy is, but you should have one of your own.
To gain insight into the sellers and understand how you can help them, you ask:
4) Why are the sellers selling?
You want to determine how motivated they are to unloading the property. Maybe the spouse of the seller passed away and the family does not want to operate the property. Maybe there are two partners that can’t stand each other and want to go their separate ways. Or, maybe the seller is older and they just want to have some cash so they can retire in luxury. Each one of these scenarios can have very different deal structures and the price is not always the primary consideration. For instance, in the case of the partners, they may be at each other’s throats. Getting a deal done quickly is important to them – maybe even more than the price. If you have the down payment and financing lined up, perhaps you can offer a lower price but with a 10-day due diligence and a 20-day close. The point is, you want to determine what is important to the seller to eventually craft an offer to meet their needs.
5) Is the city planning any new developments in the neighborhood?
Let’s say you discovered that the sellers have a portfolio of 12 buildings nearby and they have unloaded 6 of them, this could be an indicator that something is happening in the area. It doesn’t necessarily mean it’s a bad thing, as they may be looking to just cash out. However, you really want to understand what is going on locally and if there is an adverse effect on the property that you are considering. When you perform due diligence, check with the city planning on new permits for major improvements to the area and with the local police reports on calls for the property.
Those are my 5 questions to ask commercial brokers. Remember, when you are reaching out to commercial brokers, you need to differentiate yourself from the barrage of phone calls and voice messages they get on a daily basis. Sounding credible is something you need to do in the first 15 seconds when you get on a call. Getting the tour after the call is what happens after you establish this credibility. Maintaining the right posturing is important. The most important thing that the broker can know about you is that you are credible and you can close. This is one of the most important aspects people in this business consider.
Anyway, what do you ask a broker to gain their trust and credibility? How are you differentiating yourself and getting the return phone calls? Let me know in the comments.