How you talk to the Seller Makes a Difference!

When you are marketing in self-storage correctly, you are going to talk to a lot of self-storage owners directly. You need to build a relationship that will last and be memorable in a positive way. You need to make sure that you are treating them in a manner that will make them want to talk to you again. While you are building that relationship, you also need to find out about their facility. You want to know right up front if their self-storage facility fits your business model. If it doesn’t, do you know another investor that might be interested?

When you are talking to a seller who is considering selling their property you have three goals. You want to find out what their motivation is. Are they calling because your marketing materials made them curious about the current market, or are they really in the market to sell? You want to know if they have a realistic price when it comes to selling the property. You want to know the condition and upside potential of the property.

The easiest way to find out about the property is to ask an open ended question. “Thank you for calling, tell me more about the property.” Often, they will ask, “What do you want to know?” Answer, walk me through it. If that doesn’t work, then start asking them additional questions. How many units do you have? What is the configuration of sizes of the units? What is the layout like? How big is the lot? What are your occupancy levels? What is your annual cash flow? Do you know what your annual expenses are? Do you like your manager? What does your manager do for you?

You are trying to find out more about the condition of the property and the current management. You want to know if this property is performing at its peak potential or if there is room for improvement. If the property is in distress, there is more opportunity for you to increase the value of the property and your upside potential increases. If the property is performing at its peak, you may not be able to get them to sell for a discount. This may not be the ideal property for you. However, you may know someone that it would work for.

The next question is probably the most important question and ultimately the only question that matters. “Why are you selling your self-storage facility?” You need to know what their motivation is. If you don’t know why they are selling, you cannot structure the offer to meet those needs. If they are selling because they want top dollar for the property so that they can retire in luxury, you may not be the ideal buyer. On the other hand, if they refinanced to do capital improvements and now the loan is due, but the property isn’t performing well, you may have found a gem. What if there are family issues that require the property to be sold. Maybe they need a cash offer immediately.

Follow up that question with, “When would you like to close on the property?” They may say that they thought it would be nice to sell trying to hide their motivation but when you ask about a timeline, they say 2 weeks. Knowing their timeline can help you put together an offer that works for both of you.

Now that you know what the seller’s motivation is, you can start to evaluate the property to determine if this is something that you want to make an offer on. You need to start looking at the numbers. Is the price that they are asking reasonable for the net operating income and the CAP rate in the area? If they are asking too much for the property, don’t be afraid to make an offer. Many sellers set unrealistic expectations only to find out that no one will pay the prices they are asking. If you don’t make an offer, you will never know if they are negotiable.

The problem that you can run into when you are working with sellers directly is that they don’t have an agent to explain to them how pricing works. Because of this, you are going to have to explain to them how properties are appraised. They need to understand that lenders will not lend more than appraised value and savvy investors will not overpay for a property. Explain the local CAP rates and interest rates and apply them to their net operating income. This will help them to understand your offer. If they are still unrealistic, make sure that they know you are interested if they ever change their minds.

Another misconception that sellers have is that large corporations want their property. They believe that those corporations will overpay for their property because they have an emotional attachment to the property. Again, remind them that there are thousands of properties across the country and that those corporations only take the best of the best. Show them how much they need to make in a year to justify their price. Tell them to call you when they hit those numbers. Maintain the relationship so that when their circumstances change, you will be ready to step in.

Once you know the motivation, condition, and makeup of a property, you can put together an offer that will work best for you and the seller. Make sure that you are listening to what they need. If they love the cashflow but hate the work, they may be open to a seller financing situation. If they are willing to finance, you may be able to offer more than if you were working with a traditional lender. If they are up against a timeline, even if you offer less than someone else, if you can beat their deadline, they are more likely to work with you.

When you are talking to sellers, be sure to ask questions and then pause and listen. The more you listen the more you will discover. The more you know the better you can structure your offer. Take the time to build relationships with sellers. Make sure that they know that you are interested in them and their property. As always, happy investing.