There are many different ways to find a self-storage facility to buy, but one of the best is working with a broker. But aren’t brokers only interested in working with big, experienced buyers? In this Self-Storage University Podcast we’re going to delve into the basics of building a relationship with a broker and why being big is not always the important factor.
Episode 93: Can A Novice Really Get The Attention Of A Broker? Transcript
So you're just starting out, you don't own a Self Storage facility, is it reasonable for you to think that you can go and buy something from a broker, that you can convince a broker that you are a worthy buyer of that storage property? This is Frank Rolfe with the Self Storage University podcast. We're gonna talk about why starting out the novice buyer can often do just fine with the brokerage community. Now, why do you need a broker anyway? Well, there are many deals out there that you can buy, particularly in suburban and exurban markets using cold calling, using direct mail and staying off the radar of any broker, but at the same time, there's many deals that brokers have that may fit what you're looking for, and some buyers they think, "Well, I can't go to the brokerage people because they'll never take me seriously. I don't own anything, I'm not seemingly of the caliber of their typical customer", but that is a really, really bad road block that you've designed for yourself mentally, because the truth is that a novice buyer, someone who's never owned a Self Storage facility in their entire life, can often operate just fine or even beat the big companies when it comes to the broker.
Now, what's a broker's function? A broker by design basically is a matchmaker between a buyer and a seller, that's their job. So they don't operate the property, they don't assess the property, what they do is they go out and find someone who's a willing buyer to match with they're willing seller, that's their whole function. So they're always watching for who is the most likely to buy this property, who's most likely to pull the trigger and actually bring their money out of their checkbook and make this thing happen. So the first key, if you're a novice storage buyer is you gotta think more like a broker, you gotta think what does a broker of want, what are the attributes they're looking for? And I'll tell you what they're looking for. What a broker wants to know is, do you have the money and will you pull the trigger? That's all they care about because they don't get any say or any financial consideration on how you do post-closing. If you bomb miserably, they don't care. If you do well, they don't care. They don't get an added bonus if you hit certain profit thresholds, they don't get anything further.
So they don't care after closing one iota, all they care about is, will you actually close? And for you to close, they have to believe that you have the money in the bank ready to go for the down payment, and that you have the knowledge and the passion enough to actually pull the trigger and sign the closing documents. That's it. So when you approach brokers, you know what they wanna hear. You already have the money. So just tell 'em, "Hey, I've got the money for the down payment. Ready to go". And number two that you actually will do it. Explain to them why you're willing to pull the trigger, "Hey, I have decided I wanna buy a storage facility this year as an investment, I already have the money, I've educated myself on the industry and I am ready to pull the trigger and get it done", that's what they wanna hear. Don't give them a lot of questions that make them doubt your ability to do it. So if you ask some questions like, "So how does a self-storage facility work, or what do you think about storage in this state?" that makes them feel like you're wishy-washy, that you don't really have a plan, you're just a tire kicker searching for answers and using them as a resource to try and get some answers, but they don't take you then seriously as a buyer.
But if you convey, "Hey, I have the money to do it, and yes, I will do it". Those are the magical things that make them think, "Aha, this person has an edge". Also, don't forget, the brokers view persistence as a big virtue, so the more you contact the brokers, the more you bug them, it makes them more believe that you're a good buyer, just a simple act of harassing them, because they know that in any real estate transactions there's always hurdles and roadblocks that pop up in due diligence or financing, and they need people who have enough energy to jump over those. Warren Buffett once says that, "Without passion, there's no energy. Without energy, you have nothing". And they know that. So your passion, your persistence, they key in on that as a very, very favorable attribute. And don't forget that a first time buyer has two big benefits over someone who owns properties already, particularly bigger, bigger people.
Number one, you can move fast because you're like a sole decision maker. If you look at bigger storage operators, let's just take public storage as an example, I am sure that within public storage, you have many, many, many committees that must meet on any transaction that they buy, so someone could say, "Oh, this looks good to me, but let me get the opinion of everybody else", and by the time you get the opinion of everybody else, it might be weeks, it might even be a month or more. And brokers know this, they know that there's no one who is solely accountable, that everything is decided effectively by a committee, that there's multiple chefs in the kitchen, but when you're a first time buyer, you're all on your own, and they know that. If you say, "Okay, I like it, I'm gonna do it", well, they don't need to get any more opinions, and as a result, you can move very, very quickly. So that's one big advantage that has always existed with the small buyer, the startup buyer, the novice buyer, because you have the ability to pull the trigger without asking anyone's permission, you can get things going if you like it right now. And that is a big thing.
Another thing about a startup buyer is you will typically be more interested and attracted to smaller deals. Many of the larger storage owners are not. They are always out there looking for big things, big deals, lots of capital needed, and they pass over lots of small deals 'cause they think, "Oh, that's too small for me, I only do the big stuff". So if you have a pension to do the smaller deal size, that's great, because the broker knows that you are more likely to close, than the big company is. The final item, is that the smaller person, the starting out person, they're also willing to do deals that are more troubled, and that again, is a really big deal because there's a lot of turn-around storage facilities out there, particularly in suburban and exurban markets, which are the meat and potatoes today of good profitable deals, no longer the urban stuff, no longer in the heart of the city, that stuff is all doomed, you can forget that stuff. The way the demographics and the population growth is going in America, I don't think that stuff will ever turn around. But in the suburbs and exurbans where you're pressing further out, you're more likely to encounter moms and pops, who don't really know what they're doing.
And a lot of screwed up things is it's your job as a new buyer to fix, and a first-time buyer is more willing to take those things on, they'll say, "Well, you know what, I like this screwed up deal, 'cause it allows me to get in at a lower price point and test up my theories and earn while I learn", big companies won't do that. A lot of your big operators will not buy under certain occupancy levels or certain net income levels. So if you're willing to take on deals with more hair on it, again, the broker knows that and it makes you more attractive as a buyer. The bottom line to it is don't be shy from talking to brokers, don't feel for a minute that other people have an advantage over you, they do not. You, in many ways, have an advantage over them based on the deal. This is Frank Rolfe with the Self Storage University podcast. I hope you enjoyed this. Talk to you again soon.