How Beginners Can Beat Experienced Investors

How Beginners Can Beat Experienced Investors

If you are just starting out as a beginner commercial real estate investor, you might be trying to figure out exactly how to get the best deals from commercial real estate brokers. How do you beat out the most experienced investors that the brokers have access to and get the broker to give you the deal, even though you are just a beginner investor? You’re about to discover the story of one of my Proteges, who had no previous experience, just acquired 16 units in a Seattle suburb, that many would consider one of the hottest in the nation.

Value-Add Deals

That 16 unit property described in the video is a great value-add deal because the value can be increased and equity can be forced up on it. By not only increasing the rents by $75 immediately, he also found a vacant closet where he is going to install a washer/dryer hookup for the complex, in return for implementing an additional $75 rent increase per unit. In total, that is a $150 increase.

If you do the math and multiply $150 x 16 Unit x 12 Months you get almost $28,000 per a year in additional income, that equals out to approximately $500,000 increase in value. That makes this an amazing deal for my Protege. The thing is, my student’s offer was not the highest offer, and as a beginner investor, he came with absolutely no track record, yet his offer was the one they accepted. He beat the more experienced investors, even though he was a novice beginner investor. But how did he do that?

3 Tips for Beginners to Beat Experienced Investors

  • 1. Learn the Language
  • 2. Have the Money for the Down Payment
  • 3. Play to Win
1. Speak the Language

There are two languages in the real estate world. There’s commercial real estate language and there is the single family residential language (which is a big no-no in the commercial property investing world). If you want to be taken seriously as a beginning commercial real estate investor, you cannot use any type of single family residential language.

You must learn the broker language, because they do speak a certain language. You must learn the apartment language; learn the terms of the cap rate, cash and cash return, price per unit, NOI, etc. It helps build immediate credibility with the broker. If you want to be taken seriously, you have to learn these terms.

7 Commercial Real Estate Terms You Should Know

That was step one of what my Protege did. He studied the terms and learned the language to help him defeat what I call, “Beginneritis”. Which is when you’re a beginner that wants to be taken seriously, but you lack confidence. By studying and learning these terms and using them when speaking to brokers, you will build credibility and be taken seriously. It is the first step to beating the more experienced investors.

2. Have the Money for the Down Payment

Have the money needed for the down payment. This doesn’t mean that all of the money needs to be immediately available. This can become a mental block for a lot of beginner investors, because they fear that they have to have their ducks in a row before they can call the agent or make an offer. That is not true at all! In fact, I have a blog on

6 Ways to Raise Down Payment Money for Commercial Real Estate.

My Protege didn’t have all of the money available, but he had it available in various places. Have all the money for the down payment available, that’s the second tip towards landing the deal. When you’re talking to a commercial broker about a potential deal, they are going to ask you various questions to determine whether or not your are wasting their time. Your answer to where the down payment money is coming from is going to dictate how much time or how many deals they are going to send you.

We instructed our student to inform the broker upfront what he had available and he had enough available through various means to complete the down payment. That’s all he needed to tell the broker and the broker never brought it up again. When you have the money available, it evens out the playing field if you are a beginner investor. Available could mean cash, savings, retirement accounts, or even other investors. If you add all of this up you can come up with hundreds of thousands of dollars available for your deal that you didn’t think you had before. To be taken seriously and to beat out more experienced investors, you must have tip number two. You must have money for the down payment.

3. Play to Win

Play to win, don’t play to lose. One of my favorite book has a great quote I would like to share with you. The book is called “The Art of War” by author Sun Tzu.  He says, “Knowing the enemy enables you to take the offensive. Knowing yourself enables you to stand on the defensive.”

That means that if you’re going to play to win, you need to know your stuff. You need to do extensive market research and have a great plan. As coaches and mentors, our company does exactly that for our clients. We are able to put our students in the position to know how to play to win. Here are the three things we did to help win the deal and beat out the competition.

  • 1. Our offer was slightly higher than the asking price, just like everyone else who bid. In order to throw our hat into the ring, to seriously be considered, we had to do that.
  • 2. We used their in-house lender. The in-house lender is the guy who sits next to the listing broker. We wanted  them to communicate how well qualified our student was to help us win the deal.
  • 3. We kept the inspection period in the contract to 21 days. This gave us 21 days to do all of our due diligence, and all of our financing. We were determined to show that we were committed to this deal. If after 21 days, we decided to back out, our earner’s money would be non refundable. Our competition offered 30 or 40 day inspection periods, but we offered 21 days because we were so confident in the deal.

Know Your Deal

Why were we so confident in this deal? We were confident because we knew there was a rent income upside of $150 which equates to almost $500,000 in forced equity. So that’s why we were able to offer slightly higher than the asking price, because we knew the deal. We found out during our research that there were two identical properties behind this property. I saw the potential of not just 16 units, but up to 48 down the road. As I am writing this blog, my student is contacting those other owners. The property had a great location as well,  is in a suburb of Seattle with a 30 minute commute to downtown Seattle. We did our due diligence and knew this deal had fantastic potential.

Secondly, there were two identical properties behind this property and I don’t think anyone knew, because no one ever brought it up. We found out during our research, so I saw the potential wasn’t just 16 units but possibly 48 units down the road. Right now as I am writing this blog, the student is contacting those other owners.

Thirdly, their property is in a suburb of Seattle with a 30 minute commute time from that city to downtown Seattle. That’s a great area. As you know, that’s one of the hottest multifamily markets in the nation. That city had a 15% population growth since 2010 and there is a community college and two elementary schools within walking distance. What’s not to like about this deal? So that’s why we were able to be so aggressive and play to win.

Comments

  1. I have a deal right now. I negotiated the price, and even a 50% Seller carry back with zero down and zero interest on the carry back. I have all the deals and leads and can negotiate…just no partners or money since a divorce. I see all this info and everyone says the money is out there. That is my biggest hurdle. I am going to have to walk away if I cannot find a JV partner on this. They bring 20% down money and they are a 50% owner.
    Show people how to get the money. Otherwise all this is just fluff instruction.

  2. Ken Armstead says:

    Good afternoon Peter, thank for taking the time making this video and all the tips.

  3. Peter,

    Thank you for all the information you share. You are helping a lot of people including myself.

    Cheers!

    Paulo

  4. chuck hall says:

    Thanks Peter, as always, good information!

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