Brokers can be valuable members of your team when you invest in real estate. When using a real estate broker to look for commercial properties, there are a few points you should keep in mind.
1. Know which broker you’re dealing with. You can sign up on a broker’s website and get emails full of potentially good deals, but the brokers will use other brokers’ deals, and it’s difficult to know who the originating broker is. The problem with this is that the originating broker will know all the details about the property and situation and other brokers will not. You need to be able to reach the person with all the details of the property so you can make an informed decision.
2. Understand that not all properties will have a listing agreement with a broker. Sometimes brokers will list multifamily deals but won’t have a listing agreement with the seller. Some sellers don’t want to commit to one broker because they don’t want to be limited to a greedy broker who won’t consider co-brokering a deal. Sometimes sellers will agree to pay the broker a percentage if they find a buyer, but the sellers don’t actually sign a listing agreement.
3. Be up front with the seller about the role brokers will play in your real estate transaction. You may find out about an apartment building on your own and be in negotiations with the seller when a broker steps in and wants a commission. You might know more about the property than the broker does at this point, so make sure you have an agreement with the seller about what place a broker has (if any) in your deal.
4. When asking for a broker’s help in finding properties, be specific about what you’re looking for. The best brokers are very busy and don’t have time to waste hunting down properties for people who probably won’t be serious about them. If you say to a broker, “I’m looking for a Class C property, 50 units, a value play, less than $25,000 per door,” then the broker knows you are someone who knows what you’re looking for. You sound stronger, and you hold more sway.
5. The broker fee on commercial properties is generally the same as the fee for residential properties. Figure on paying around 7% to sell your apartment buildings and other commercial properties.
As you search for multifamily real estate properties, be aware that realtors can help you find good deals. But don’t rely solely on their advice and resources. Use all of your options to help you build your wealth and acquire properties.
Please Hit The Play Button To Hear This Powerful Audio…
This post has special significance for me. Because I want to tell you a story – a recent story from my life and yet more evidence of the power of your mindset.
This story has to do with the Vision Board. And you can hear it all on the 3 minute audio above, as well as the significance of the image in the upper left hand corner, which is lifted straight from my Vision Board.
Listen to how this image has led to my business being selected as 1 of 7 finalists for a national entrepreneurial contest, known as Better Your Best. And how you can create the same leverage in your business and life thru the same simple mindset exercises.
The Vision Board is NOT a replacement for action. Rather, it removes the internal mental hurdles and fears that tend to freeze natural action and habits.
Next week, on October 3, I will be presenting to 300-400 people on why our business should be selected as the winner of Better Your Best. Regardless of the outcome, recognition as a finalist is yet additional verification of the power of the mindset techniques I practice and teach.
If you have not yet created your own Vision Board, I encourage you to schedule time to do it this week. Put it on your schedule today. If you need help in creating a Vision Board for your multifamily business, see the box to the right labeled “Resources“.
Just do it. This stuff works.
And remember, your mind is your greatest asset (TM).
Lance
One of the decisions you as an investor will make when you own an apartment building is whether or not to advertise the apartments as “All Bills Paid. ” In an “All Bills Paid” apartment building, there’s only one bill for each tenant that includes rent and all utilities. That means that you as the owner are responsible for taking care of the utilities. What are the pros and cons of this scenario?
Pros
Easier to Rent. “All Bills Paid” apartments are easier to rent because tenants enjoy the convenience of not having to worry about utility bills. They’re also easier to rent because the tenants don’t have to come up with a credit check or a deposit for utility companies.
Simplified Accounting. The owner only pays one check each month to the utilities company for the entire building.
Potential to Increase NOI. If you calculate conservatively on utilities usage, you could potentially increase your NOI (net operating income) with “All Bills Paid.” If you’re charging $250 on top of rent for utilities, but utilities actually cost you $200, you have increased your NOI.
Cons
Could be Costly to the Owner. When tenants aren’t monitoring their own utility bills, they’re less judicious about conserving energy. If electricity is “free,” they won’t worry about leaving the air conditioning on while they’re away for the day. Meanwhile, the building’s electricity usage is climbing, and you will end up footing the bill.
Friction Among Tenants. If you have to raise rents because utilities prices have increased, some tenants may complain that they have been conserving energy while other tenants have been wasting it. Usually, the tenants will work this out among themselves, but the property manager will likely hear about it.
Considerations
If you are concerned that an increase in utility charges or excessive usage by tenants will hurt your bottom line, you could add a clause to the contract that says if the utility bill exceeds a certain amount, the property manager reserves the right to bill back the tenant. This increases tenants’ awareness of energy consumption.
If your building is set up with a single electricity meter, you can put a monitor on the individual units to measure usage. You can outsource this service to a company that monitors usage every month. This can be helpful in determining which tenants are overusing energy.
“All Bills Paid” apartment buildings are Class C buildings . If you own an older building and wish to simplify your accounting, attract new tenants, and potentially increase your net operating income, consider converting to “All Bills Paid.”
With any real estate, single family or multifamily, sellers may be quite attached to their properties. Sellers’ pride in their properties can make negotiations exceptionally difficult at times. When evaluating a multifamily property, buyers need firm details about rents, occupancy, cap rate, and so on. But how do you get past a difficult or emotional seller?
1. Walk away from an unreasonable deal. Sellers can afford to throw out unrealistic numbers if they have plenty of time to sell. They put a price out there under the bigger fool theory and wait for the bigger fool to show up. As a buyer, however, you need to know how to evaluate a deal and walk away from one that won’t help you meet your goals. This can be difficult when you find a beautiful property and you’re anxious to invest. Have the determination that you’re looking for a good deal and you won’t settle for anything less. Your patience will pay off.
2. Make an ally out of a difficult seller. When you come across a seller who has set a too-high price for a property, you can build a relationship with him even if you can’t buy his property. For example, you could say, “It sounds like you have a beautiful property and I’m looking for a value play. Your property is not probably one I could look for here, but are you looking for other deals in the area? If I come across a deal, maybe you’ll want to buy it or invest in it.” You’ve just made a contact with someone you can do business with in a different way.
3. Be specific about your requirements. Some sellers have not thought through the finances of their property and may not be able to talk with you about its market cap rate and net operating income. But you can do the research and find out the details. Then, if the price is just too high, you can leave an offer you can afford, an offer that will give you a little cash flow and be a workable deal. You can tell the seller that you realize it’s a low offer, but it’s all you can do. He can consider it a backup offer in case he ever needs it. If no “bigger fools” show up, you may well get a phone call.
Remember that you’re going to come across all kinds of sellers. Try not to write anyone off completely. If you keep your mind open and your goals in sight, you can come up with a good deal and possibly a greater network of fellow real estate investors in your area.
In one of our seminars, we talked about the principle of faith .
This was a great Aha moment because it helped us to understand one
of the major differences between people who make their goals happen
and people who just keep waiting .
“It’s about faith . Most people don’t start the journey because they
want to see over the horizon to their final destination.”
“If you take a step and get started, you can always course-correct
at any point along the journey, but you’ve got to take the first step .”
I hope you take that first step on the journey. It’s a fabulous journey.
Lance Edwards’ Multifamily Apprentice Student Quote:
Here’s an Aha Moment that can really affect how you act .
Have you ever felt hesitant to act because you didn’t know how every detail would turn out?
This student realized that taking action can set off a string of events that may never have occurred otherwise.
“A lot of times people are worried about how they’re going to get the money, but how do you know that you’re going to need the money?”
And further:
“People don’t take action because they’re trying to figure out everything before they do it. …Money loves speed. If you just take action , all these things you can’t see will reveal themselves to you just because you sent out some letters or called a broker.”
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