What I Learned from Bidding on a 12-Plex

[Christopher Erwin]

Below are some learnings by our Omaha investor group from when we bid on a larger commercial property. Unfortunately our bid wasn't accepted but we learned a tremendous amount.

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LEARNINGS FROM BIDDING ON A 12-PLEX

WHAT WORKED WELL:

• A COVER LETTER: It's difficult for buyers to stand out in today's market. High prices, few contingencies, all cash bids, etc. So, a personal touch can go a long way in helping get your bid accepted. We used a simple one-page cover letter that included (1) brief bios of our investor principals (2) our investment & business partner values (3) our intent for the local community. We'll use this same form for other bids, though we'll always customize...think about what personal touch you can add to your next transaction.
• TRUSTED FINANCIAL MODELS: We used Bigger Pockets' online calculators to do quick yet thoughtful analysis. I've assessed 50+ properties with their ROI tools, so I'm very well versed on what model inputs I need upfront & my target return thresholds, & can perform my financial diligence very quickly.
• TIMELINESS: We saw the lead on Thursdsay night & immediately carved out 5 hrs on Friday to do diligence, call commercial lenders, etc. We also had a 7:30am Saturday investor call to prep the final bid (FYI less buyers work on weekends = less competition). Further, our agent worked through the weekend (a trait I highly value) & had good intel from real time convos with the seller group.
• COLLABORATIVE & HONEST PARTNERSHIP CONVOS: Our investment principals were candid about current capital & time avails (prudency is optimal in this mkt). With this info, our investor group was able to think creatively & found a way to make a large bid with just a small portion of the investment group.
• DOWNSIDE PROTECTION: This was our largest value bid to date, so we did a thorough assessment of downside scenarios & exit options. We ensured we had the requisite bid contingencies, diligence follow-up & backup capital sources to protect our interests.

WHAT CAN BE IMPROVED:

• BID RANGE IN COVER LETTER: In the standard PA form, only the base bid is featured, NOT the upside range. If the seller is skimming fast (likely), they may assume this base bid is the max value offered & quickly dismiss. Also, even if the seller eventually sees the escalator clause in the addendum, their initial emotional reaction to the offer is already biased. As buyers participating in a very competitive process, we want to best control all emotional reactions...missteps here can cause a seller to quickly move on to the next bidder.
• ENGAGING CLO'S EARLIER: Commercial Loan Officers are more conservative than conventional lenders, have a lot more questions, & prefer a track record / longstanding relationship with clients. Our investor group is now officially on the radar of many lenders in Omaha, & regular follow up with group updates & further guidance on our investment plan will be prudent to strengthen our lender relationships.
• DILIGENCE LEAD TIME: The listing came up early in the week but we only caught it on Thursday. Our investor group should be tracking large MFUs better so we can have more time for diligence / site visits. It wasn't ideal to request that one of our local principals do an exterior-only site visit late on a Friday. I emailed my property mgr but he was on vacay that day, which was unfortunate since his input is always helpful (shout-out to Andrew!). Solution = better filters in Zillow / Trulia, & advise our agent these are a priority for our group.
• EXISTING BID TEMPLATE: We realized it'd be helpful to create a bid template for our agent & investor group so we can more quickly prepare our next bid (e.g. escrow is XX% of base bid range, requisite contingencies, etc).
• PARTNERSHIP BRANDING: Establish a group name for mktg purposes when we're talking to sellers, buyers, etc. Will position us with more legitimacy & polish for external convos.
• LEADGEN: We need more leads! We've setup systems & processes to accelerate discovery, though regular review & group feedback will help us optimize our constant search.

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