Finding the perfect agent is sometimes not a perfect experience. You may find that you must go through several agents before you find the right one. Do not give up if you have a bad experience the first time. Remember that this process is a little like dating. You are looking for a longterm relationship. You usually have to date more than one person before you find the perfect match.
Finding a commercial agent is different than finding a residential real estate agent. You need someone who is experienced in the type of investing you want to do. For example, if you are interested in buying self-storage units, you want an agent that specializes in self-storage or who has done several self-storage transactions. You don’t want to be the one to train them on how to work in this area of commercial real estate. You don’t want them “learning from their mistakes” on your dime.
You want someone who can help you. You need to be able to rely on their expertise and advice. You want an agent who knows what pitfalls you might run into during your due diligence process and who can successfully help you navigate through them.
No matter what area of expertise you select, you want someone with a lot of good connections to property managers and reputable builders who can help you rehab the property if needed. You want an agent with connections that will help you in the local area that you are investing in. If you are working in another state, it is especially important to find a good local agent. They are going to be your eyes and ears and your feet on the ground. They will be the ones coordinating everything for you. They will make sure that you get all the information you need to make an informed decision.
When you are working out of state, you should contact several agents to verify that they are all telling you the same thing. This not only educates you, but it will help you see who is knowledgeable and who tells the facts accurately and honestly. You don’t want to work with an agent who will tell you anything to get the sale. For example, if one agent is telling you that the market is very strong and two others are telling you that the market is oversaturated, you may not want to work with the agent that is wrong.
When you are interviewing Realtors, they will be interviewing you too. In addition to having a list of questions for them, you also need to be prepared to answer their questions. Start out by verifying their area of expertise. Here are some example questions: “Do you work in self-storage?” “How many self-storage properties have you sold?” “What kind of current inventory do you have?” You want to get a feel for their experience level. Don’t be afraid to be blunt and ask direct questions. You need to make sure that they know how to help you. You may be an expert in the type of property you are buying, but you still need someone who can give you solid information so that you can make an educated decision about the real estate market and real estate properties.
Next, you want to communicate with them what you are looking for. For example, here are the types of statements you will make: “I am looking for ugly properties,” or “I am looking for the self-storage properties that have an upside potential,” or “I want the properties that have vacancies that are due to poor management or bad looks, or “I want the properties that no one else wants.”
Those properties that are too dumpy for them to create a marketing package? Those are the ones that you want to see. Most people are not looking for a dump and the Realtors avoid them. Reassure them that you will do a considerable amount of prescreening before you buy a property, but you really are interested in the dumps. Ask them to give you 24 hours to review a property before they create that pesky marketing package. You will determine if you want the property during that 24 hours. This gives you the first opportunity to get in a bid before anyone else even knows it’s on the market. Be sure to emphasize that those ugly properties are exactly what you are after.
Another thing you need from your Realtor is an alert every time there is a new property on the market. Ask them to call you with every new property so you can run the numbers and determine if you are interested in that property. You want the opportunity to make your own decision on everything that is available, even if it isn’t a fixer-upper, because there just might be a good deal out there. Good deals sell fast so be clear that it is critical that they contact you right away.
When your agent contacts you with a good opportunity, make sure that you act immediately. You are safe making offers quickly because you are always going to include a due diligence contingency. If you find problems with the property after you have it under contract, then you can back out without losing your earnest money. This allows you to put in offers on properties without doing all of your due diligence first. This strategy of putting in offers quickly allows you to be more competitive. Having an escape clause in your contract also allows you to put in offers without spending a lot of time researching the property only to discover that the sellers are not willing to negotiate on the price. Some agents do not like to put in lots of offers without doing a lot of due diligence first because they don’t want to have to cancel the transaction once it has started. Be sure that your agent is comfortable with this style of making offers and that they are willing to help you find properties this way.
Another topic you need to discuss with potential real estate agents is finders’ fees. While you have the agent on the phone, ask them how they are finding their listings. Agents are almost always looking for additional listings. Let them know that you are going to be marketing to a wide variety of sellers who may or may not already have their property listed. Explain to the Realtor that you will be doing a lot of your own marketing in the area to try to find owners that might be interested in selling. As you do this, you will talk to a lot of sellers who just aren’t willing to sell at your price. However, they still want to sell their property and need to list it. You will need to refer those sellers to an agency who can help them. Ask the potential real estate agent if they pay a marketing fee to people who bring them listings? A lot of agents have limits on what they can pay in finders fees. However, you have another option. Usually, agents do not have a limit to their marketing budget.
Make sure that your fee is reasonable based on the profit the agent is going to make on the property. For example, if you are going to send them a $500,000 listing, they will only make $15,000. That $15,000 commission will be split with their broker. If you ask for a $10,000 marketing fee, the agent is likely to say no because they won’t make any money. However, if you were to ask for a $2,000 marketing fee, they might be more open to that.
As you start looking for an agent, you need to be prepared to answer some questions about yourself and your financial capabilities. The agents don’t want to spend a lot of time working with you if you are not able to purchase a property. You want to make sure that you make a great impression, so you want to be able to communicate to them that you are financially able to purchase the properties you are looking at.
They may ask you for a pre-approval letter or a proof of funds. When they do this, you need to know what you are going to say. For example, if you have cash and you are pre-approved for a $2 million loan, fantastic. However, if you are working with partners, you may not know which partner you are going to be working with. In this case, you would want to tell the agent that you would be happy to provide them with proof of funds as soon as you have a property under contract. Let them know that you can purchase a property in any price range if the numbers work. However, you have several different partners and lenders that you work with. Once you have identified a potential deal, then you will pitch it to your lender and your partners to see who is going to work with you.
They will then ask you what your numbers need to look like for you to be interested in the property. If you haven’t already talked about this, this is a good time to tell them that you are looking for fixer-uppers or properties with low occupancy due to mismanagement. You are looking for properties with an upside potential.
If you are going to get a loan yourself, more than likely you will want to consider an SBA (Small Business Administration) loan for your property. One benefit to an SBA loan is that you only have to put 10% down. This allows you to stretch your cash farther. Another great feature is that your interest rate with SBA is locked for 20 years. Unlike other loans, the interest rate will not change or increase for 20 years. For more information on SBA loans, check out our blog on SBA financing. Your real estate agent should be familiar with clients using SBA loans. This can be part of the discussion about financial capabilities.
In summary, shop around to find the best agent for you in your target market. Make sure that they have the expertise needed. Make sure they are willing to make lots of low offers. Make sure they are willing to contact you right away about new properties. Be prepared to discuss their level of experience. Discuss marketing fees for referral listings. Be prepared to discuss your financial capabilities. Most importantly, make sure they understand the types of properties you are looking for, ugly self-storage properties with potential. They must be your eyes and ears to find great deals. If you would like more information about what to look for in an agent, you should check out some of our training materials where we have in-depth discussions about how to talk to agents and how to screen agents.