Engaging Apartment Brokers - Key Questions?
New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
Engaging Apartment Brokers - Key Questions?
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9yI do commercial retail these days as a developer and a principal broker.
I have buyers fill out a financial statement or give me one they have already made out for review before I spend any huge amount of time with them.
The broker before answering a bunch of questions from you will want to know 2 quick things.
1. Is this buyer a flake or real? Meaning can they buy with their own funds with cash or easily qualify with financing and some down OR are they not showing financials and talking about no money to little money down type junk that isn't relevant today?
2. Are they realistic in their return expectations? If they want pricing in the cycle of 3 years ago they are out of touch with reality.
If a buyer has little to no financials, weak credit,no track record, crazy buying structure, and wants pricing that no longer exists that's a non-starter.
34 Replies
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
I've definitely searched the BP website but I'd love for a few people to give me their top 3-5 questions you start asking when first inquiring about a property.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
Even if the property is next door to you (or a mile away), your questions should focus on management of the property. Unless you have dealt with an 18 unit and the tenants, this aspect of the "job' will most likely be the largest challenge. If you don't a smooth running operation could become (in short order) a distressed property.
The listing broker will prepare stuff like: rent rolls, P/L statement, physical building information (size, location, amenities, etc.) Numbers seem to always look better than they are. They won't tell you about: existance of functional obsolescence, insurance claim history (ask for a 'loss run' from the owner's insurer), historic and recent eviction schedule/rate, defaults and concessions.
As quickly as possible, you need to find out what your nighmares might look like. How much/high are your capital requirements (deferred maintenance), how intense is competition (immediate (local), vicinity, region), and why the seller is selling... because of management problems? vs. property issues? vs. uncontrollable market conditions?
There are a lot of parameters, but either the property fits your objectives or it doesn't. If it's a cash flow play, you can run pro-forma with a friendly multi-family loan broker just from listing information.
Listing brokers will probably want to see some financial capability from you and your partners. So think of that ahead of time. Without it, they won't spend much effort or time with you...
Turnarounds are a little more work and may require more effort depending on you experience and how you interface with the lender.There should be 3 questions in there, but your top 3 and my top 3 will be different.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
I do commercial retail these days as a developer and a principal broker.
I have buyers fill out a financial statement or give me one they have already made out for review before I spend any huge amount of time with them.
The broker before answering a bunch of questions from you will want to know 2 quick things.
1. Is this buyer a flake or real? Meaning can they buy with their own funds with cash or easily qualify with financing and some down OR are they not showing financials and talking about no money to little money down type junk that isn't relevant today?
2. Are they realistic in their return expectations? If they want pricing in the cycle of 3 years ago they are out of touch with reality.
If a buyer has little to no financials, weak credit,no track record, crazy buying structure, and wants pricing that no longer exists that's a non-starter.
- 9yGino BarbaroPro MemberRental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
@Account Closed
Hi Tiara
I wrote an article for bigger pockets:
https://www.biggerpockets.com/renewsblog/2016/07/3...
I think this will help in asking broker questions. I also have an ebook that will help.
Gino
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Thank you so much for your detailed response! I'm definitely taking notes of all of the things you mentioned. In all of my reading/research, I had not come across asking about insurance claim history at all. Can you give me a little more detail on what is considered functional obsolescence?
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Originally posted by @Joel Owens:
I do commercial retail these days as a developer and a principal broker.
I have buyers fill out a financial statement or give me one they have already made out for review before I spend any huge amount of time with them.
The broker before answering a bunch of questions from you will want to know 2 quick things.
1. Is this buyer a flake or real? Meaning can they buy with their own funds with cash or easily qualify with financing and some down OR are they not showing financials and talking about no money to little money down type junk that isn't relevant today?
2. Are they realistic in their return expectations? If they want pricing in the cycle of 3 years ago they are out of touch with reality.
If a buyer has little to no financials, weak credit,no track record, crazy buying structure, and wants pricing that no longer exists that's a non-starter.
Thanks for the considerations you brought up Joel! I can definitely understand having the means to buy. However, what if upon further evaluation I no longer want to buy? Would I still be considered a flake, even if I have the means? Also, I do have to ask, with all of the talk of little to no money down that happens on this site, why would you say that it isn't relevant today?
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Originally posted by @Gino Barbaro:
@Account Closed
Hi Tiara
I wrote an article for bigger pockets:
https://www.biggerpockets.com/renewsblog/2016/07/3...
I think this will help in asking broker questions. I also have an ebook that will help.
Gino
Thank you Gino! I will be checking out your article right away.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Tiara there are tons of the buyers in the market today that have cash to play with for purchasing a property.
There is an incredible amount of money out there.
4 to 5 years ago at the bottom of market recoveries for some asset classes owners were desperate to do anything. So they might have taken a chance on someone with little to no money just to take over and manage the headache. If the owner finance didn't work out then the seller took the property back hopefully in a more recovered market.
These days little to no money down deals are very hard to find. Now owners still might sell to someone for little down if they have very,very deep pockets already.
If someone has little money, okay credit, and wants zero to little down do not expect a broker or agent to put any time into that in today's environment. At least if that broker/agent is doing any kind of business and not standing around twiddling their thumbs.
Example someone contacts a broker/agent:
Investor A: I have read and heard of this little to no money down thing. I want to find an incredible deal and put little to no money down. I have limited credit,no experience, little money and will need partners to make the purchase happen. I need you the broker/agent to help me learn the process also along the way.
Investor B: Hello my name is ------ and I am an engineer making 100,000 a year. I have saved up 200,000 with 100,000 more in reserves. I am looking to buy 10 units at 75,000 a door in a B area for a cap rate of 7. Goal is long term retirement planning.
Investor B looks like a much more desirable prospect to put time into for a broker/agent.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
Originally posted by @Account Closed:
Thank you so much for your detailed response! I'm definitely taking notes of all of the things you mentioned. In all of my reading/research, I had not come across asking about insurance claim history at all. Can you give me a little more detail on what is considered functional obsolescence?
In the context of your apartment building search, functional obsolescence may include not having W/D hook-ups (and no laundry building), no central A/C (only window units), no dishwasher, limited kitchen (e.g. 2 cabinets, limited countertop), 3 bedroom 1 bathroom, 7' wide bedrooms, no electric ground, ... in otherwords 'things' you wouldn't ever see in anything built recently.
- Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes9y
Originally posted by @Account Closed:
Originally posted by @Joel Owens:
I do commercial retail these days as a developer and a principal broker.
I have buyers fill out a financial statement or give me one they have already made out for review before I spend any huge amount of time with them.
The broker before answering a bunch of questions from you will want to know 2 quick things.
1. Is this buyer a flake or real? Meaning can they buy with their own funds with cash or easily qualify with financing and some down OR are they not showing financials and talking about no money to little money down type junk that isn't relevant today?
2. Are they realistic in their return expectations? If they want pricing in the cycle of 3 years ago they are out of touch with reality.
If a buyer has little to no financials, weak credit,no track record, crazy buying structure, and wants pricing that no longer exists that's a non-starter.
Thanks for the considerations you brought up Joel! I can definitely understand having the means to buy. However, what if upon further evaluation I no longer want to buy? Would I still be considered a flake, even if I have the means? Also, I do have to ask, with all of the talk of little to no money down that happens on this site, why would you say that it isn't relevant today?
Tiara,
Most of this site talks about single family properties and the strategies to buy them and in that world, "little or no money down" is still live and kicking because there is an endless supply of distressed owners and unsophisticated home owners.
The multifamily investors are typically more experienced and recognize the fact that the market is hot and that there are plenty of buyers out there that will pay cash or qualify for a loan so why would they let someone take over for no money down?
- Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes9y
@Account Closed
If a seller of a good property were willing to sell for no money down, the broker would have already purchased it.
The no money down deals would have to be something you found off market and essentially talked the seller into owner financing it.
- Real Estate Broker · Tulsa, OK · Member since 2016 · 38 posts · 18 votes9yPlease take all these to heart. As apart of a MF broker team, we get dozens of inquiries A DAY on our listings from people we know real quickly are just wholesaler wannabes or someone who just came out of a real estate seminar. We don't waste our time with those when we can sell to an actual buyer all day long. I'm a little more patient than my partner, but if you say "hey I have x amount of dollars and am wanting to buy something soon," I'm probably going to help you. If that "x" is 0 or close to it, probably not. Feel free to message me any properties you come across and I can double check their numbers for you. Brokers love to put out pro formas that make the property look great but they'll leave out some key elements which you'll need a broker to spot them for you. Good luck!
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
@Account Closed I read your profile and saw you had land in SC. I'm curious as to where it is and if you are thinking of developing it. I have 2 parcels (one 83 acres, the other 6) in Columbus county NC that I have plans to develop.
- 9yJohn CasmonPro MemberCincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
@Account Closed wrote a great article on the various questions to ask a broker when forming the relationship and learning a market. Going back to your original question, assuming you've done your market research already and received the pro forma financials, here are a few more questions to ask specifically about the property:
- How long has the owner owned the building?
- Is it an individual owner or partnership group? Do they own other property? Why are they selling this one?
- What updates have been made in the last 2-3 years and what updates were they planning for this year? - New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Ahh, that makes perfect sense @Joel Owens - thank you for laying that out clearly! Yes, I can see that and definitely agree. Putting myself in the owner's (or broker's) shoes, why would I want the hassle of someone with little money and an uncertain financial situation if I could choose to work with Investor B? Short answer: I wouldn't, unless desperate to unload a property that serious investors don't want to deal with.
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Oh okay, that makes sense @Chris Martin! I'll keep that term and concept in mind. I've definitely seen a few places like that while looking.
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
@Joseph Gozlan, yes, that makes sense. I don't really see a reason unless the property is a money pit or in an area that only pencils on paper but is far too time intensive or prone to economic vacancy to actually produce. I've seen a few of these in Memphis actually, which is why I think the owners are offering "low/no money down". However, I definitely am not interested in those types of properties.
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Thanks @Mark Gallagher, that makes perfect sense! I am not personally targeting the low or no money down deals. It's just something I came across while reading things here on BP and wanted to understand it better.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Tiara whether it is an investor,broker or both everyone has to (dig for the diamonds) these days.
I have thousands of contacts nationally in the retail real estate space with property managers, direct owners,developers, and other brokerage companies.
The Fed is talking about raising interest rates 3 more times possibly in 2017. This can have an impact on pricing from both the seller and buyer side.
Whether I am developing land for a commercial project myself, looking for an existing investment myself, or finding my buyers the property directly they want it takes a bunch of time,effort,and energy to do so. There is an adjustment and (meeting of the minds) in the middle for what a seller wants and a buyer wants to put a deal together.
There is no easy money in today's markets and you have to find the property or land with potential and create the value. I look at over a thousands flyers and OM's a week and only like about 10 to 20% of them. 3 to 4 years ago I liked about 50% but there was more quality product on the market to choose from. These days many of those buyers are in a hold position because they used a 1031 exchange and would not have something with the same quality and cap rate available to exchange into today.
One example is an owner I came across that had a 3 unit retail center with all national tenants in a great location for about a 4 million value. He bought 3 years ago for a 7.7 cap rate. My client would like a 6.8 to 7 cap. This owner if he sold the difference between the 7.7 ( likely close to 8 cap with rental increases now) and the 7 is only 100 basis points before resale costs. The owner could not find that same cap rate and quality in today's market as developers are having to pay more for land costs before construction so selling at 7 cap or below. If developer can't get their price for new product they simply refi out to 70% of the newly constructed value with a hold and go keep developing. So in that situation the owner had no interest in selling understandibly.
It might take me months sometimes even with all my connections to find the right property for my clients and then another 3 to 4 months to close. So maybe half a year but I am making at least 6 figures at a time and have different clients at different points in the process.
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Thanks for confirming all the information in this thread @Jonathan Gobbo, being that you are a RE Broker. @Joel Owens I appreciate your valuable input as a CRE Broker as well! I appreciate the time you all have taken to educate me. I'll keep in mind to be direct and lead with the fact that I can close.
Jonathan, I'll definitely message you any properties I come across that I might like a second opinion on. Thanks for the offer!
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Thank you @John Casmon. I need to remember not to fall in love with a specific property and instead focus on the general types of deal I'm looking for - good advice!
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Originally posted by @Chris Martin:
@Account Closed I read your profile and saw you had land in SC. I'm curious as to where it is and if you are thinking of developing it. I have 2 parcels (one 83 acres, the other 6) in Columbus county NC that I have plans to develop.
Specifically in Greeneville, SC Chris. I'm actually not sure what to do with it at this point honestly. I'm not even sure exactly how many acres it is - maybe 50? 75? It's been passed down within my family and I may be the first to actually think about what to do with the land, let alone propose a plan for development or so forth. I'd be happy to bounce ideas around though! Feel free to inbox me.
- New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes9y
Originally posted by @Joel Owens:
Tiara whether it is an investor,broker or both everyone has to (dig for the diamonds) these days.
I have thousands of contacts nationally in the retail real estate space with property managers, direct owners,developers, and other brokerage companies.
The Fed is talking about raising interest rates 3 more times possibly in 2017. This can have an impact on pricing from both the seller and buyer side.
Whether I am developing land for a commercial project myself, looking for an existing investment myself, or finding my buyers the property directly they want it takes a bunch of time,effort,and energy to do so. There is an adjustment and (meeting of the minds) in the middle for what a seller wants and a buyer wants to put a deal together.
There is no easy money in today's markets and you have to find the property or land with potential and create the value. I look at over a thousands flyers and OM's a week and only like about 10 to 20% of them. 3 to 4 years ago I liked about 50% but there was more quality product on the market to choose from. These days many of those buyers are in a hold position because they used a 1031 exchange and would not have something with the same quality and cap rate available to exchange into today.
One example is an owner I came across that had a 3 unit retail center with all national tenants in a great location for about a 4 million value. He bought 3 years ago for a 7.7 cap rate. My client would like a 6.8 to 7 cap. This owner if he sold the difference between the 7.7 ( likely close to 8 cap with rental increases now) and the 7 is only 100 basis points before resale costs. The owner could not find that same cap rate and quality in today's market as developers are having to pay more for land costs before construction so selling at 7 cap or below. If developer can't get their price for new product they simply refi out to 70% of the newly constructed value with a hold and go keep developing. So in that situation the owner had no interest in selling understandibly.
It might take me months sometimes even with all my connections to find the right property for my clients and then another 3 to 4 months to close. So maybe half a year but I am making at least 6 figures at a time and have different clients at different points in the process.
I really appreciate you giving a real life example to illustrate your point! It helps me understand exactly what you mean when you say dig for good deals. When you say find deals with potential and create value, are you speaking generally or do you mean finding value add deals with the goal of forcing appreciation? In your opinion, was there any possible adjustment your client could have made to convince the owner to sell and it still be a good deal for the client? I'm definitely trying to learn when and how much to compromise when deals are harder to find. Of course, I'm still new so my criteria is likely much different from more experienced investors.
- Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes9y
@Account Closed - Good for you! We are also looking for multi-family units in Memphis! Have you attended the Memphis Investor Group Multifamily meetings? They are lunch meetings once a month. You can find the schedule here: http://mig.clubexpress.com/ You don't have to join MIG to go. Just show up for lunch! Great folks there with lots of wisdom and lots of wannabe owners like me! :) Let me know if you decide to go so we can meet!
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes9y
Neither your investor A nor investor B sound like someone I'd want to do business with.
Investor A might be the right guy, but doesn't know how to achieve his goal. He's not educated. He knows he shouldn't be using his own money / credit, but doesn't know how to do it within those constraints.
Investor B doesn't know he shouldn't be using his own money or credit. He's not educated, either. Sure, you can prey on him and get your fees and commissions, but I wouldn't consider that either proper or ethical.
My ideal would be Investor(s) C. This/These guy(s) should come in talking about his/their business(es), their business resources and financing and their investing goals for the commercial MF being sought.
My $0.02 ...
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