Discover the 3 most powerful questions you should ask every multifamily seller to uncover hidden opportunities and avoid costly mistakes!
We’re diving into the 3 most powerful, yet often overlooked, questions that can make all the difference in your investment strategy. These questions will help you cut through the fluff, uncover hidden opportunities, and avoid costly mistakes. But to truly get to the heart of a deal, you need to find off-market properties and work directly with the seller rather than through an agent. This allows you to gather unfiltered information and better understand the seller’s motivations, paving the way for more favorable deal terms and pricing. These are the same questions we teach our students to ask every multifamily seller, and they have consistently yielded successful results.
Question #1: Why Are You Selling?
The first questions to ask a multifamily seller is, “Why are you selling?” While this might seem like an obvious question, it’s often overlooked by investors. The goal is to understand the seller’s motivation because when you know why they are selling, you can better tailor your offer to meet their needs. It allows you to structure the deal terms and pricing around the seller’s motivations and make the deal more attractive. As I often say, when you have a motivated seller and a motivated buyer, beautiful things can happen. The three most common responses from sellers to this question are:
Answer #1: Retirement
When a seller says they are retiring, it’s often only part of the story. Sellers typically give surface-level answers, so you need to dig deeper. To get the full picture, ask this question three times. This is what we teach our students to do, and I guarantee you that you will get variations of the answer all three times.
For example, the first time you ask why they’re selling, they say they are retiring. Then, as you move further along in negotiations, you ask them again, and they say, “I’m selling to move closer to the grandkids in Florida.” This begins to unpack a deeper level of the seller’s motivation. And then, once you’re under contract you can ask, “So you’re moving to Florida; how’s that going?” If the seller says, “Well, I’m under contract to buy a home down the street from my son”, that changes the stakes because now the seller needs to sell. So that’s why you need to ask this question three times. By peeling back the layers like an onion, you’ll uncover additional motivations and knowing these deeper motivations will help you negotiate more effectively.
Answer #2: Buy A Larger Property
When a multifamily seller answers, “I want to buy a larger property” this usually means the current property isn’t meeting their goals. It could be underperforming, have no cash flow, or suffer from property management issues. This is your cue to dig deeper into why it’s underperforming and identify value-add opportunities within the property.
Answer #3: The First of Several Properties
The third answer a seller often gives is, “This is the first of several properties I own that I’m selling.” We love this type of answer because it indicates a broader opportunity. For example, our students, Eric and Maria, are currently in the process of buying multiple properties from a single seller, all through seller financing. With our help and using our direct to seller marketing, they met a seller that owns six properties, and they are buying each one methodically, one by one, and they’re on their fourth property now. So that’s the beauty of going direct to the seller and why this is so important to ask the seller this question and be a good listener.
Question #2: What Will You Do with Your Proceeds?
Question number two is, “What are you going to do with your proceeds?” This question delves into the seller’s plans post-sale and aims to uncover their secondary level of motivation. It is designed to give you a deeper understanding of the seller’s motivations and potentially opens the door to opportunities. Here are the three most common answers you’ll encounter:
Answer #1: Capital Gains Concerns
Some sellers may answer, “I’m not sure, I’ll have to deal with capital gains taxes first.” This is because when you sell a property, you must either do a 1031 Exchange to defer the capital gains taxes or pay Uncle Sam a good chunk of change in capital gains. If taxes are a concern, this is your open door to proposing seller financing or other creative financing structures, such as a master lease that may work for both sides. Using these creative financing strategies can help the seller defer some of their capital gains taxes.
Answer #2: 1031 Tax Deferred Exchange
The second response a multifamily seller will give is, “I’m planning a 1031 Exchange.” While this typically means there’s no room for creative financing, it also means the seller has strict timelines to follow, which can work to your advantage. For instance, the seller has 45 days to identify a new property and 135 days to close. If the seller has identified a property he wants to buy with his profits and is pressed for time, you can leverage this because he needs to sell the property within the timeline or pay capital gains taxes. So, if you’re under contract with him you can use this information to create a win-win deal for both you and the seller.
Answer #3: Enjoy the Rest of My Life
The third common response is, “I want to enjoy the rest of my life.” This is a fantastic answer that opens the door for building a deeper relationship with the seller. Ask the seller how they got started, what challenges they faced, and how they achieved their success. A strong relationship can make the seller more flexible during negotiations because they want to see you as the buyer. Commercial real estate is a relationship business, and if the seller likes you, they will bend during negotiations.
Hopefully you’re starting to understand the significance of asking these questions. Again, you need to approach the seller directly. Having an agent involved won’t work because the agent isn’t going to disclose these details to you.
Question #3: What Does a Good Offer Look Like?
This is my personal favorite and one that has produced results for over 20 years. By this point, you’ve already built some rapport and gained insights into the seller’s motivations and now it’s time to find out the price the seller wants for the property. It’s a psychologically kind way to find out the seller’s price terms without making them defensive. Here’s how to ask it without altering the wording:
“What does a good offer look like?”
Instead of asking for the lowest price, which puts the seller in a confrontational mindset, this question encourages them to think reflectively about what price would be acceptable to them. Because you’ve built credibility and a relationship by now, the seller is more likely to give you a thoughtful and favorable answer. Ultimately, it’s an approach to keep the seller from becoming defensive and to get a thoughtful answer about pricing and terms. And by understanding a seller’s motivations and needs, you position yourself as a considerate and credible buyer, making it easier to create win-win scenarios.
Questions or Comments? Text PETER to 833-942-4516.
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