Real Estate Investing: Working With Brokers
Building a relationship with your real estate brokers seems to be one of the great mysteries for the beginning real estate business. Some business owners take the approach of “I am the customer they should be happy to have me.” Others assume the broker does not understand real estate investing, or many assume the broker knows the buyer is new and doesn’t want to be bothered. Any of these scenarios may be true, but more likely the buyer is the problem. Let me break down each of these situations, and you will see the answer has a common thread.
First up, let’s discuss the attitude of “I am the buyer I am always right.” From someone who has retail experience, I can tell you the end of that phrase is “except when you are not.” You may not be correct in assuming the broker should be glad to have you as a client. Just like everyone else, the broker has a limited amount of time and resources to invest in making a living. A broker does not get paid for spending hours with you; they get paid if a deal closes. When you speak with a broker, it is your job to explain your criteria. It is then the broker’s job to explain his or her criteria. The two of you should then decide if this is a good fit. Part of this process is you knowing exactly what your product is. For example, explain that you are buying multifamily units in B and C neighborhoods throughout the greater Ohio River Valley. Now the broker knows your product and your area. If that is not their market, it is not a good fit. Do not change your market to fit the broker. Find a broker who specializes in your product ask for referrals.
The second obstacle is thinking that the broker does not understand what I want. That may be true if the broker does not specialize in your product or does not work with investors. However, it is possible that you are not sure what you want. Therefore, you cannot communicate your need effectively. A good broker is only going to offer the best products to buyers they know can close the deal. If you are not able to convince the broker that you understand the product and have a method for analyzing and closing the deal, the broker will not be confident to present you as a potential buyer to the seller. The best way to overcome this hurdle is for you to take the lead during your first meeting. Let the broker know your business model. In addition to the product and area, you may want to discuss how you analyze a deal. This will let the broker know that you will be doing your own due diligence and buying on actual not proforma numbers.
The third and probably most prominent problem is “the broker knows I am new.” Everyone has a first deal. It is more about how you view and present yourself than about how the broker views you. In order for the appointment to go well, the broker needs to know that you have a business model. The problem for many new real estate business operators is they don’t know their business model. If you don’t know, you cannot expect everyone else to know. So let’s address your business model.
What is Your Business Model?
When describing your business model you need to hit the highlights and answer the questions before they are asked. Begin with what is most important to you. The most important thing for me is the area. I can change a building and change the tenants, but I can’t change the area. I look at the economics of the market to determine if it is stable and up and coming. Then I look at the neighborhoods. Is it an A, B, C, or D neighborhood? These are very subjective so I want to be sure the broker understands what I think a B or C neighborhood is. Next, I address how I am going to analyze the numbers and what targets meet my criteria. Last, and most important, I let the broker know how I am going to purchase these properties. For example, currently I am buying with Fannie Mae financing and Reg D syndication to raise capital for the upfront costs. On some occasions I will use bridge financing to stabilize a property. When I am finished showing the broker how I do business, I always finish with, “How do you see us doing business together?”
At this point it is time for you to take a breath and listen. If you feel comfortable then it is time to move forward, and go back to step one and begin again. You can never have too many good brokers bringing you deals. Just make sure that you have a Broker that understands you and your needs so that you can form a symbiotic relationship.
Rich Dad Education Elite Commercial Course Instructor