Every Broker Wants To Know The Answer To This One Question

[Dan Handford]

I made a post yesterday about how we (including @Brandon Abbott) spoke with 7 brokers in one afternoon in Charlotte, NC. These brokers were all in the 100+ multifamily investment space and I found it interesting that every single broker asked us this question:

"How are you capitalized?"

After thinking about it further, this makes absolute sense. As a broker representing a seller they want to make sure that any buyer they bring to the table can actually close the deal.

Before you go visit brokers, make sure your story of capitalization makes sense.

If you can sell them on your capitalization strategy, then they will be more likely to go to bat for you. The broker will try to sell you to the seller upon submitting your first LOI.

Contrast that, if you do not explain your strategy for capitalization then the broker will likely not sell you to the seller. As a matter of fact, the broker will sometimes convince seller not to sell to you because he does not believe you can actually close the deal.

What do you think? Also, do you have any other tips for talking with brokers that you have learned from your own personal experience?

[Brian Burke]

One thing is for sure, @Dan Handford--your thread title says it all.  Every broker wants to know this.  As does every seller.

Earlier this year I sold a property and had over a dozen offers.  We focused on the top three and the question at hand was "where is their money coming from".  We based our decision on that answer, and the answer to this question:  "How easy is this buyer to work with?"

The end result is we did not pick the highest offer.  I bring this up to simply illustrate the point that having a good answer to the capitalization question, and a track record of closing deals and not being a pain in the you know what is what gets you deals.  Even without having the highest offer.

In most large multifamily transactions, the seller and broker will hold a round of interview calls with the top 3 to 4 buyers.  They want to know how many deals you've done, how many units you own in that market, what your due diligence process is, etc.  But the remaining two questions will dominate the discussion:  1)  Where are you getting your debt (and what experience do you have with that lender) and 2) where are you getting your equity.  If you don't have very compelling answers to those two questions the deal will go to one of the other buyers.  Leaving you to wonder, "why can't I seem to get any deals??"