Buying a self-storage property typically revolves around getting the seller to do something, and that skill is called “persuasion”. But how does it work and how can you be better at it? In this Self-Storage University podcast we’re going to explore the basic methods of persuasion and how to practice them.
Episode 84: Understanding The Art Of Persuasion Transcript
Webster's defines to persuade as to 'cause someone to do something through reasoning or argument. This is Frank Rolfe with a Self-Storage University Podcast. We're gonna talk about persuasion, how it works and how to use it to get that self-storage facility at the price you wanna buy it at. So there are basically two types of persuasion used in the self-storage industry. The first type is called direct persuasion. Now, in direct persuasion, you confront the issue head on. You tell the seller, "Here's what I want and here's why it's good for the both of us." So you might say, "I wanna buy this self-storage property for a million dollars because number one, I will be the perfect steward of it. I will take it to the next level. I will keep all your existing customers extremely happy. You'll be very happy with me. Number two, I'm the most logical buyer for it because I really want to own something in this area."
"It's an area I'm very focused on. And number three, a million dollars is a very, very fair price because this self-storage facility only generates about $80,000 a year of net income at an Eightcap that's about a million dollars. And so that is a fair price for me as the buyer and you as the seller. And also don't forget, you have no debt on this property. You build it for next to nothing. So it's a huge payday for you too... " That's a direct persuasion. You just tell them, "Here it is, here's how it goes, and I want to go ahead and get this thing bought." But yet, there's another kind of persuasion out there called indirect persuasion. So it's also called an O. Henry persuasion. Now, O. Henry was an author back in the 19th century. He wrote a large number of books, and in those books it always had the same thing.
You had someone who basically thought a certain way, and at the end of the book, he learns that they were wrong the entire time. Someone who says, "I don't like hard work. Hard work is for chumps. I'm gonna live a life of crime." And at the end of the book they would say, "Oh my gosh, you know, I screwed up all along. Crime isn't where it's at. I should have been doing things legitimately." So how do you have indirect persuasion with a self-storage facility? Well, what you do is you tell the the seller, "Look, I'd like to pay more for your property. But you know, just like you, I have to get a loan because all real estate is based on the concept of lending. And the lenders, you know how they are. They don't want to feel spooked that they can't get their money back. If I default and they sell it at auction, they want it to come out whole. And as a result, I've talked to a number of these banks."
"And they tell me they can't finance more than a million dollars on this property. And on top of that, I've talked to some appraisers and banks have done recent appraisals on a property just like this with the same amount of net income. Recently, again, only appraised out at about a million dollars. So as a result, even though I'd be like to pay more, if I could, I can't. I can only pay you a million dollars for it." So the indirect persuasion, is you can see, I'm using somebody else as a scapegoat. I'm trying to get some commonality with the seller and say, "Hey, I'm just like you. I wanna get the most I humanly can for the property. But unfortunately, I'm not the decision maker. It's the bank, it's the appraiser." Now, when should you use direct persuasion versus indirect? Well, most people use direct persuasion because it seems easier, more logical to use.
But indirect persuasion is much better when you face the hostile owner, the owner who does not agree with where you're going. The owner that wants way more money for their property than what you're offering because you're trying to establish common ground and you're trying to explain to them why this is all you can do. But you're trying to pass the the blame onto someone else so they don't get mad at you. It's kind of like good cop, bad cop, right? You wanna be the good cop, but you wanna blame and get all the things you want to get by claiming that the bad cop is making you do it. So if you're looking at self-storage facility and the amount that the person wants is far, far in excess of what you're wanting to pay, then you probably wanna pop into the the indirect persuasion mode where you can bond with them and explain to them how you're kind of a victim of the system and that's all you can do.
But if you think there's a chance they might go with the price you're going to propose, then direct persuasion may be the better course. Now, in both direct persuasion and indirect persuasion, of course, you also have to remember all the rules of negotiating, which is typically one party has to throw out an initial price. Then there is the, what's called the flinch, where you pretend that, "Oh no, that's, that's way more than I can pay." And then you have the rebuttal, you know the retort of the price that you wanna do, and then you tend to try and settle somewhere in the middle. So it's not to say that direct and indirect persuasion eliminates the ability to barter, that it saves you from that step. No, it doesn't do that. But what it does do, it helps preface your offer or how it is presented because the whole key to the offer is it is of no value unless you can get a counter.
So if I wanna buy your property for $2 million and you want $3 million, and I throw out a price of $1.8 million and they refuse to counter, I've accomplished nothing. If I can throw out 2 million and get them to ultimately agree to that number, then I've accomplished something. So the whole point of negotiation is to throw out the price and the persuasion aspect of that is simply in the upfront presentation, how you present that price. Some people are extremely firm on what they want for their storage facility and others are much more rational and reasonable. And you see that all the time, right? In life. You see people that are just fixated on things and they won't listen, they won't change their mind. They're incredibly stubborn and other people that are more educated about it, they're more reflective, they more listen to you and then make decisions based on the information you present.
So you've gotta look through the sellers and try and figure out what stack do they go in? Is this seller one that I can just tell it like it is and see if I can get a deal cut? Or is it one that more I have to tell a tale of why I can't do this or can't do that, but I don't want all their wrath to come back on me. Once you've identified which kind of seller you have, you think through the pricing strategy and what you're trying to accomplish. Then in there you can decide if an indirect or direct persuasion is your better bet. Direct persuasion often comes off stronger, more genuine. But indirect persuasion also has its own accomplishments based on the environment in which you're making the offer. Remember, the key to all in everything is to get that property under contract at the price that you can afford to pay. And whatever means get you to that end is all acceptable. And sometimes you'll know what to do instinctively when you talk to the seller, just based on your background of other negotiations you've made throughout your entire life. All of that will come into play and you'll say, "Aha, I think I know what to do in the case of this seller, to go ahead and get that deal cut." This is Frank Rolfe, the Self-Storage University Podcast. Hope you enjoyed this. Talk to you again soon.