How to Handle Broker Calls -- from a new investor

Question

Hi BP,Thanks to all for making this such a great resource! Absolutely fantastic.I'm just getting started in real estate investing. Over the last 2 months I have read and listened to A LOT and my mindset has progressed from SFH to multi-family to apartment buildings. My focus right now is on acquiring a 10-25 unit (possibly up to 50 unit) apartment buildings and holding them for the long term. I have business background (owned/sold a few EdTech companies) and capital. What I'm lacking is experience in real estate which leaves me with some gaps in knowledge that I'm trying to fill in. My goal is to knock out some of these "gaps", one by one. This is my first one below.I've read/listened (Michael Blank, Lance Edwards and others) about the importance of relationships with commercial brokers. Being in front of brokers, reaching out to them, establishing personal relationships, etc. I want to be top of mind as new deals come in. This much makes sense. However, both Michael and Lance spoke of the importance of not sounding like a newbie by asking the right questions, knowing how to talk the talk and generally making a good first impression but we're a little short on specific examples.I would love to hear from you if you have experience and specific feedback on the best way to handle a call to a commercial broker. What types of questions are good questions? What types of questions are bad questions for this initial phone call? What is the logical progression of next steps after the initial phone call? If a Loopnet listing is short on details what is a reasonable request on my part at this point in the process? Offering memorandum? Rent Roll? Exact expenses? Is everything on the table?Any feedback is greatly appreciated! Thank you.

Chris Tracy · Answer

Hi Scott... Here's my 3 cents from the horse's mouth, as I am an investor as well as an agent:"What types of questions are good questions?" Step 1- Build rapport and just be a human being. At the end of the day, people do business with people that they know, like and trust. Avoid sounding like a robot on the phone- reading a script word for word. Practice and be relaxed. Nonchalantly slipping in the industry terms will start to persuade the broker that you know what you're talking about and didn't just step out of a seminar (not that there's anything wrong with seminars). The main obstacle that you are up against is convincing the broker that you can perform, so you may get the, "I need to see proof of funds" line, "What do you own?", etc. You can combat this by generally explaining the syndication process, you work with private investors, etc. Your next goal after establishing rapport is to get the broker to send you the financials. Good questions would be business related (about the market, etc.) as well as about the person (as appropriate), so you don't make them feel like they are just a cash cow that can send you deals. Make them your friend. This business is a relationship business. "What types of questions are bad questions for this initial phone call?" "Can you send me off-market deals and notify me first when the good ones come up?" What is the logical progression of next steps after the initial phone call? Exchange emails, make sure you have all the info you need, underwrite the deal, follow-up and give the broker timely feedback on why the deal does or does not work for youIf a Loopnet listing is short on details what is a reasonable request on my part at this point in the process? (see above & below comment)Offering memorandum? Rent Roll? Exact expenses? Is everything on the table? Yes, along with a T12 and the asking or whisper price. You can ask, "What do you think this deal will trade at?"Good luck!

Joel Owens · Answer

As a principal broker and investor I want to know what existing cap rate they are wanting on a property, if they are paying all cash, if they have a 1031 exchange and do they have the funds yet?If not all cash what debt structure do they want to use? If a syndicate do they have a track record? Is this an early stage startup or are they ready to go NOW for the right opportunity? I want to know if they are realistic for return for market conditions and demand or they have no clue about market dynamics and want returns from the bottom of the cycle 5 years ago.If it's pie in the sky stuff then forget it waste of time. The buyer can be looking for a year and not find anything or maybe one property.How many properties in what period of time is the person looking to buy? If they say early stages and in 1 to 2 years might buy one property that is not as compelling as they have a fund and are looking to buy a property every 2 to 3 months etc.Just be honest about where you are today and where you want to go. Do not mislead and pump yourself up to get in. That way you over promise and under deliver on go on the brokers crap list. If you are not local then there has to a compelling reason to work with you. For example if there are already local investors and groups that have a track record and are buying then WHY is the broker going to bring a deal to you?One reason might be the local guys want to much yield.Example I have Cali buyers getting 3 to 4% return but have had big equity gains. They 1031 and buy 7 caps in other states and LOVE the returns. Local investors piss and moan about cap rates were 8.5 to 9 -5 years ago. They want to buy for that price in today's market and safety of the current up cycle. They are dreamers and a waste of time. If someone has a full property throwing off monster cash flow they generally are not going to sell for some super high cap rate. They will either wait for the right buyer to purchase a lower cap rates or refi and pull equity run up out.

Scott Skinger · Answer

@James Kojo Thank you, there are some more nuggets in there that are very helpful@Joel Owens Thank you as well! It is good to hear the real world thoughts and concerns from the broker side and it will be very helpful in rethinking my approach.

James Kojo · Answer

@Scott SkingerI think @Chris Tracy gives some great advice here. I'll add my 2 cents.On the first call, you're really looking to accomplish 3 things:1) Establish a human connection. Be genuine, courteous and likable. if you aren't any of those, then you'll have to work on them first. :) Show that you respect their time and their consideration, and let them know that you'd like to do business with them.2) Establish credibility. Not quite as easy as it sounds, but not hard either. Some ways to do this: a. Know and articulate your strategy. b. Know and articulate your purchasing criteria. c. Share who is on your local team, and why they are so awesome d. Demonstrate deep knowledge about the target market by talking about specific districts/townships and how they fit in (or don't) with your strategy. e. Demonstrate knowledge of who you're talking to by finding their past and current listings ahead of time. f. If you have closed a deal in the target market in the past, make sure to bring them up. (i.e. you're a closer, not a tire-kicker.)3) If you're calling about a specific deal, get the financials. Sometimes they'll test you: "What financials do you want?" A reasonable answer: "T12, current Rent Roll, and 2016 PNL. Proforma if you have one."For me, I like to do my homework before I pick up the phone, because I'm an 'offline thinker' and i'm not a natural sales person. Follow-up with the periodically. I'm not sure if there's a magic number on how often you should follow-up. I'd be interested in hearing thoughts. For me, I follow-up roughly every 3-4 weeks by email.Hope that helps!James

James Kojo · Answer

great insight @Joel Owens! I’ll put it to practice right away. Thanks!

Chris Tracy · Answer

Thank you @Scott Skinger. I appreciate that!

Scott Skinger · Answer

@Chris TracyBTW, saw your link in the signature, bought your book on Amazon. I will post a review on Amazon after I read it. Let me know if there is anything else that I can do for you.

Scott Skinger · Answer

Chris, thank you so much! I appreciate the detailed answer.