Tip To Win More Best & Finals Offers - Close More Deals!

[Dan Handford]

In this market we all must look for ways to one up our competitive bids without changing the underwriting and lowering investor returns. 

I was meeting with several brokers this past week. One of them mentioned that many of the deals that are being awarded right now are doing something very strategic, although not new by any means.

He said that most of the awarded deals are now making their initial earnest money HARD on day one of the contract. 

I’ve thought about this quite a bit and have come to the conclusion that this is a very good, stealth idea for winning more contracts!

A couple of things to consider before providing day one hard money:

1) make sure you tour as much of the property as possible before submitted the LOI.

2) hire a local residential/commeecial inspector to walk the property with you and to point out anything that may be obvious red flags. This seems would only cost you a couple hundred bucks and would be well worth it. 

3) have multiple experienced people review your underwriting and have a couple others fully underwrite it again to double check to make sure it works.

4) you MUST make sure you are confident with your capitalization strategy so you can fully execute a capital raise to take down the deal. 

5) have a drone inspector come fly the property for anything obvious that you may not see...these things cost less than a $1k and you can DIY if you choose.

6) Be confident and go for it!

I know some of you won’t agree with this strategy because of the inherent risks associated with losing the earnest money but I believe the benefits of winning more deals will outway the possible negatives. It all comes down to how confident you are in yourself to take down a deal.

Any other things you would make sure to pay attention to before making your money hard on day one in a multifamily apartment investing deal?

[Brian Burke]

Originally posted by @Dan Handford:

 Any other things you would make sure to pay attention to before making your money hard on day one in a multifamily apartment investing deal?

I can think of a couple more things to check.

1. Check on the status of the capital markets because a wild and sudden swing in interest rates or a freezing of lending could make your acquisition either undesirable or impossible.  Unfortunately the lenders are one thing you can't control.  I once had a major lender fail to perform at the closing table.  Fortunately we found a replacement that did the deal very quickly but that lender turned out to be horrible to do business with.

2. Check on the availability and cost of insurance, because the property's loss history could cause rates to be a lot higher than expected and could compromise your returns.  Probably not enough to make the deal un-doable but if stacked on top of other factors that are discovered in DD it could add up.

3. Check your gut to make sure that you can stomach losing several hundred grand if something goes wrong.  

I know that hard money day one is all the rage these days, but it's starting to lose some of its appeal because buyers have enough holes in the conditions that hard money isn't really hard if it's done right.  And brokers are starting to see this after being burned by it more than once.  I know some brokers that counsel their clients not to place a lot of emphasis on the big hard deposits, and rightfully so.  Better to just pick the best buyer rather than the most hard money.  Funny though, they say the opposite to the buyers -- "put up a big hard deposit and you have a better chance!"

Personally I just don't do it.  I feel like it puts a syndicator in a conflict of interest.  If something bad is discovered during due diligence, the syndicator is faced with a difficult decision.  1) Lose $200K of your own money and walk away from the deal.  2) Go ahead with the deal and make a $200K acquisition fee.  In choice #2 the syndicator might be tempted to suppress the adverse findings in DD, close the deal, bank their fee and hope that the market bails them out.  

Of course to that we all would say "I'd never do that".  But I'm a 30+ year pilot and I read the accident reports--pilots always say "I'd never take off in that kind of weather" or "I'd never let myself get that low on fuel, I'd just make a fuel stop", yet the leading causes of general aviation accidents relate to flying in adverse weather and fuel mismanagement.  Just take it off the table by refusing to do the hard money unless it's a small amount that truly wouldn't move the needle if you walked away from it.  And to the syndicator: if you are going to take off in bad weather, do everyone else a favor and don't take passengers (investors).