How To Get Brokers To Bring You Deals – Rod Khleif with Beau Beery – Ep #141

 

Here’s some of what you will learn:

• Due diligence of the Acquisition process
• Important things you have to do prior when going to contract.
• Why brokers will help you find the best assets.
• How to get brokers to bring you deals.
• Update your broker every 3-4 weeks
• Show your broker that you have proof of funds.
• Let your broker know if you are interested in the deal they bring you within 72 hours.
• Have an understanding of how your broker will be paid.
• The more you close on deals, the more deals your broker will bring you.
• Never go around a broker directly to the client.
• Don’t re-trade a deal with a seller.
• Don’t give a broker impossible purchase criteria.
• Everything you should ask for when doing your due diligence.
• Anytime you deal with a government official, always reduce the conversation to writing.
• What kind of buying team you should have.
• When you should look for a property manager that already has a lot of properties.
Our Guest

You can learn more about Beau Beery at:

www.beautodd.com

 

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Full Transcript Below:

Ep 141- How To Get Brokers To Bring You Deals – Rod Khleif with Beau Beery

Welcome. This is the Lifetime CashFlow Through Real Estate Investing Podcast. This is where you’ll learn strategies to help you achieve lifetime financial freedom through real estate investment. Your host, Rod Khleif, has owned over 2,000 homes and apartments. And he brings experts in all aspects of real estate investment and management on to the show. Now, here’s your host, Rod Khleif.

 

Rod Khleif:               Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled you’re here. I know we’re gonna get a ton of value from the gentleman we’re interviewing today.

 

He’s name is Beau Beery, and he is owner of a commercial real estate brokerage up in Gainesville, Florida. I’ve known Beau for quite a while now. I will tell you, he adds a ton of incredible content to people he’s doing business with. I get emails from him regularly. He’s co-owner of a 90 plus agent, award winning real estate brokerage firm. His specialty is the purchase and sale of multi-family assets, which is what we talk about on this show.

 

We are gonna get a ton of value from him today, Beau, thanks for being here, buddy.

 

Beau Beery:              Yeah, man, no problem. I’m happy to do this. This’ll be fun.

 

Rod Khleif:               Yeah, this will be a lot of fun. Now guys, we are gonna dig in deep to really the acquisition process, the due diligence, what to review before you go in. I mean what to review once you’re in the due diligence period.

 

Beau is an expert at all this so we’re gonna dig deep on this. Some of this content may not be as fluffy as you like but it’s really important. So hang in there with us because if you’re serious about this business this is information you must have.

 

Beau before we start, tell us a little bit about your background, in how you got in the business and a little bit more about you.

 

Beau Beery:              Sure. My first sort of real job, if you will, was I worked for Trammell Crow Residential, back in the late 90s. At least at that time, they were one of the largest apartment developers in the country. I was just On-Site Manager of a 400 unit apartment community.

 

I did the leasing, I did the management, and it was there where I got sort of that first taste of watching 1000 people pay for a $30 million asset. I thought to myself, “Man, I got to get in this business. This is amazing.” I never saw the owners. They’re just kind of a ‘on autopilot’.

 

Rod Khleif:               Right.

 

Beau Beery:              Through that process Trammell Crow paid for education. I got my real estate license. I then went back and did my Master’s Degree in real estate from the University of Florida, which is one of the top five graduate real estate programs in the country. I’d also done my undergrad in marketing from UF. Upon graduation, I worked for a local, or I guess, the main local developer here in town. Just did various shopping centers, office buildings, apartments.

 

In 2011, I joined forces with Todd Rainsberger, J Parrish and Susan Parrish to acquire Coldwell Banker, here locally. Ever since then I’ve been doing brokerage for the masses, if you will. My specialty is multi-family. It’s what I love. It’s what I know. It’s sophisticated, there’s numbers involved. There’s no emotions. It’s just business and numbers, and that’s what I like.

 

Rod Khleif:               Yeah, it’s very empirical. You have to leave the emotions out of it. That’s what’s so beautiful about it, if you understand the numbers. All things being equal of course, you wanna check out the areas and… All things being equal but it really is numbers driven.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Let’s get right into it. Let’s talk about the important things you have to do prior to going to contract. Let’s go right into that.

 

Beau Beery:              Let me just put a couple of things out there, even before that is, generally speaking, any kind of multi-family asset that is on a website, that is email blasted around, that’s a big caution. I would go into those slow, and with a lot of trepidation because most good multi-family brokers or let’s just call it, the best of the best. They’ve already got a pool of buyers that they know, have done business with, that show up to closings. Typically, when something that’s any good at all hits the “market”, if you’ve seen it, come across it on your email, or it’s own websites, it’s probably already been shopped around.

 

Inherently, it’s already got something to overcome, or what have you. Now listen, they’re still good deals out there that you may come across the websites. It happens. Some brokerages, just by the nature of the way they do business, they put everything out there, period, no matter what. There’s few of those but there are some things you can find on there.

 

I don’t see any other way to find good assets other than, number one, you got a broker or several brokers that you’re working with on a regular basis, and you’re very close with, that you’re keeping contact with them. I’ll tell you how you do that. Or secondly, you’re doing that work yourself. Frankly, that has to be full-time. Finding good assets, that is a full-time job.

 

Rod Khleif:               Sure.

 

Beau Beery:              That is what I do all day long. If you’re not gonna have some brokers that are in your pocket, that are in love with you, and you’re in love with them, you’re the one that needs to find the properties. You’re the one making the phone calls all day long. You’re the one that sort of drip marketing yourself into them, and you’re keeping contact with them.

 

That leads me to, how do you get brokers to pay attention to you, and to bring you deals. Do you want me to go into that, Rod?

 

Rod Khleif:               Absolutely. No, let’s do that next because everybody’s encountering that right now because if you haven’t taken down a deal, for example, your new. It’s very difficult to get a broker to take you seriously. I tell people on the show here, it’s very important to follow up with a broker if they send you a deal.

 

I want you to dig in from a broker’s perspective, how does somebody get noticed? How does somebody get taken seriously?

 

Beau Beery:              Good. Let me give you five things that you should do and five things that you should never do.

 

Rod Khleif:               Okay. Awesome.

 

Beau Beery:              Some of the things you should do are: you need to be updating your broker a couple times a year, just to stay on top of their mind. Now that seems obvious, but let me make sure you understand. You are only as good… As a broker, I tell my brokers this all the time. You are only as good as your last touch with your customer.

 

And likewise, as an investor, you’re only as good as your last touch with your broker. Because, listen, you could think you have the best relationship in the world with a broker and vice versa, and that guy could be at some social meeting or a dinner event, and he runs into some other investor, and they’re having a beer, and they’re talking about, “Oh, I used to live there.”  “Oh, I know that guy, and I know that guy.”

 

And all of a sudden, it’s like the next day they’re best friends. That guy gets some apartment complex that he’s doing a BOV on, and guess who’s he gonna call? It’s the guy who is fresh on his mind. I’ve seen it happen a million times. I’ve lost tons of deals myself with customers who I thought are like my blood almost. It’s not someone who’s trying to be a prick.

 

Rod Khleif:               Right.

 

Beau Beery:              It’s human nature. Like you had offered someone…

 

Rod Khleif:               Sure. Sure. If you find somebody new, and they tell you they’re interested in deals… By the way guys, a BOV is a brokers opinion of value, for those of you who didn’t know what that meant.

 

But absolutely, that recurring contact is critical. I tell people get a CRM and use a CRM so you stay in front of these people, you need to stay in front of. CRM by the way guys, is client relationship management software and there’s lots of free ones, or practically free ones online.

 

If you’re gonna do this business, you have to do it for the long game. You have to develop those relationships and stay on top of them. We’re talking about brokers now but the same thing applies to bankers and lenders.

 

Beau Beery:              Right.

 

Rod Khleif:               But let’s go back to brokers. Stay in front of them regularly. I think two times a year frankly is, in my opinion, not enough but I think every couple of months. Every three months you send him an email to say, “Hey, I’m still looking how are you?” Or a phone call, or have lunch, or whatever.

 

Beau Beery:              Yeah. Absolutely. From a broker to an investor, we have to limit ourselves so we aren’t annoying because those investors are getting calls from dozens of brokers. But once we’re in the reverse, when the investor is keeping in touch with us… It’s like you can call me every three or four weeks. Like that’s great. That shows me motivation. That shows me that you’re in the game to win. Because ultimately, all we give a crap about is that you show up to closing.

 

Rod Khleif:               That’s right. You don’t get paid unless they’re closing papers get signed.

 

Beau Beery:              Right.

 

Rod Khleif:               Motivation, I’m sure, is a big factor in your decision-making as to who you’re gonna deal with.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Yes? Okay.

 

Beau Beery:              You’re right.

 

Rod Khleif:               What else? You said five things.

 

Beau Beery:              Number two is, if you don’t know that broker he doesn’t know you, show him that you have a proof of funds. That could be a letter from your lender. It could be something from your CPA, or financial advisor but something that says, “Hey, this guy has enough assets; enough ability to buy a $5 million complex, a $2 million complex, $20 million complex.” Because we get calls all the time and emails all the time, just like you do.

 

Rod Khleif:               Sure.

 

Beau Beery:              From folks saying, “Hey, we’re looking for an apartment complex, value add, hundred plus units… When someone shows us a financial statement or shows us a bank account… You can have their information blanked out or whatever.

 

Rod Khleif:               Sure.

 

Beau Beery:              We’d know that these guys have the capacities, that sort of check marks off that part of it.

 

Rod Khleif:               Guys, let me interject… That’s great. Fantastic advice. Let me interject something. Remember this, guys, this is a team sport, okay? So if you’re out there, and you don’t have the proof of funds then go find somebody that does. Bring them in on the team.

 

If the net worth requirement isn’t there, find somebody, put them on the team, and get the net worth requirement that you need to get the financing, ‘cause it’s a team sport. This is not a singles game… Please continue.

 

Beau Beery:             Yeah. Number three, and this is a big one.

 

Rod Khleif:               Okay.

 

Beau Beery:              When we bring you an investment, I need you to act extremely fast on the deal. Now, let me make sure you understand what I mean by that. I don’t mean that in 48 hours you need to know everything about the property, and turn an offer that’s… Bam, bam, bam.

 

I just need to know in 48 to 72 hours, whether you want to take a run at this or not. Because, you have to understand, if I’m bringing you something off market, then as a broker, I don’t wanna look incompetent to my seller.

 

First of all, if I’m coming to you, it means that you’re real deal guy that I believe you can bring the best value to my customer who I’m representing. So if I come to you, I can’t just like talk to one or two people and let them take two weeks to make a decision, whether or not they wanna go see it or underwrite it. If it’s a no, that’s totally cool. I respect that. But tell me quickly, alright?

 

Rod Khleif:               Yep.

 

Beau Beery:              … That’s a killer.

 

Rod Khleif:               No. That’s so simple. That’s so obvious but so important for people to hear. So that’s awesome. Great.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Keep going.

 

Beau Beery:              Alright. Number four, if an unlisted seller, someone who’s got a property that I found, it’s not on the market. He’ll take an offer. If that guy won’t pay me or won’t pay the broker for procuring, we need to have an understanding before I even bring you something like that, that you’ll pay me, because this is an unprotected world, sometimes, in doing some the dealing from the broker’s standpoint. So if the best listings are not on the market then that means there’s not usually, sometimes, the sign listing agreement up front, or…

 

Rod Khleif:               ‘Cause this market’s really hot guys.

 

Beau Beery:              Yeah.

 

Rod Khleif:               You’re talking about integrity.

 

Beau Beery:             Yeah.

 

Rod Khleif:               Bottom line. If you haven’t got integrity you may get one deal, but this is a small world. I mean it is. This commercial real estate world is a small world

 

Beau Beery:              Right.

 

Rod Khleif:               You screw a person once or twice you’re done.

 

Beau Beery:              You’re dead forever.

 

Rod Khleif:               You’re dead forever.

 

Beau Beery:              Definitely.

 

Rod Khleif:               Basically. What we are saying guys is, if he has an off-market listing, and he brings you to that seller to put the deal together, ‘cause the… Sellers are funny guys, you get sellers that just refuse to sign anything until you show them a contract. They won’t list it, but if you bring him a contract, great. But you got to protect you’re broker. You’ve got to make sure they get paid. Alright. Awesome.

 

Beau Beery:              That’s right. Listen, no broker is going to get paid from a seller but then tell you he’s not, and then have you pay him so he gets double commission.

 

Rod Khleif:               Right. Right. No…

 

Beau Beery:              Like that’s gonna show up on a ________ [bad audio]

 

Rod Khleif:               Oh, yeah. No, no, no, no. Integrity goes both ways but brokers are held to a very high standard, and governed, and watched, and regulated so that’s not gonna happen. But no, if he’s not getting paid from the seller, he’s gotta get paid, so don’t…

 

Beau Beery:             That’s right.

 

Rod Khleif:              Don’t be pennywise and pound-foolish.

 

Beau Beery:              Alright, the fifth thing that you should do is close on deals. Like the more you close, the more deals you’ll see from more brokers. Now, if you come across something that just… 55 dead bodies were under the building and there was just horrible, horrible things going on that was unbeknownst to anybody, I get if you don’t close.

 

Rod Khleif:               Sure.

 

Beau Beery:              Or something needs to be redone or re-traded but generally speaking, the more you close the more dealers you’re gonna see.

 

Rod Khleif:               That’s a no-brainer. Once you close, then you’re really taken seriously. That’s so critical but like you said, I mean if the due diligence shows things that weren’t disclosed, or there was misrepresentation, significant, not minor stuff then that changes things a bit.

 

Beau Beery:              That’s right.

 

Rod Khleif:               You should at the very least try to re-trade or renegotiate. Alright, awesome, awesome.

 

Beau Beery:              Alright, five things you should never do, Rod.

 

Rod Khleif:               Okay.

 

Beau Beery:              Never, ever go a round a broker directly to their client.

 

Rod Khleif:               Again, integrity. Integrity.

 

Beau Beery:              I shouldn’t have to say this but it goes on all the time.

 

Rod Khleif:               Sure.

 

Beau Beery:              Sometimes, a guy thinks he’s being innocent. Sometimes, he is just trying to save something but that’s just the worst thing you can do. Listen, you may win in that one situation, but you’re gonna lose overall, let me tell you.

 

Rod Khleif:               Same, same, same. It really is. It will shock you guys, how small this world really is, this commercial multi-family space. Yeah, that’s just, in any business, frankly, you just you just do the right thing.

 

Beau Beery:              Yeah. Alright, number two, kind of goes to what you should do but don’t renegotiate or re-trade a deal with a seller unless there’s some huge surprise. I just hit on this but let me give you a couple of other examples. There are folks for whom, have a business plan. Whose business plan is actually to put deals under contract, at whatever they can, just so they can get off the market as soon as possible.

 

They get through 44 days of the 45 due diligence period. They’ve done… They’re in close communication or action. They’re acting like they’re super into it that the seller’s making plans with the money and all the stuff. And all the sudden, “I need a million dollars off bro, or I need $200,000 off.

 

Like horrible, horrible, horrible thing you can do. Number one, you will never do another deal with that seller. Number two, I will never bring you another deal. Number three, it just makes you look bad, and that word spreads like wildfire, man. The most dangerous thing in the world, Rod, is the stuff that’s being said about you, that you don’t even know is happening.

 

Rod Khleif:               Sure.

 

Beau Beery:              That stuff spreads in this world…

 

Rod Khleif:               Got it.

 

Beau Beery:              In multi-family field so quick, I know a number of people who are just frustrated. They can’t do deals but I know what their reputation is in the market because of things they’ve done in the last few years.

 

Rod Khleif:               Yeah. There you go. There you go.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Okay. Common sense stuff, guys.

 

Beau Beery:              Number three, obviously, never sit on a deal that a broker brings you. We talked about that.

 

Rod Khleif:               Right.

 

Beau Beery:              Yeah, I talked about how it’s okay to pass it, so I’ll sort of move past that one.

 

Number four, don’t give a broker impossible purchase criteria.

 

Rod Khleif:               Give me an example.

 

Beau Beery:              I get calls all the time from folks who are saying, “Hey, I’m looking for a stabilized C asset in an A location, 9% cap rate.

 

Rod Khleif:               [chuckles]

 

Beau Beery:              It’s like, get out of my… That is just ridiculous. It doesn’t exist. Not only it… That’s not even considered a unicorn. That’s like a double unicorn with like a horse butt and doglegs. It just doesn’t even make any sense.

 

Rod Khleif:               No, definitely not on market. That’s for sure. I don’t even think they can find something like that off market. But no, we’re in a hot market right now, so be realistic.

 

Beau Beery:              Right.

 

Rod Khleif:               I get it. I get it. Unless you’ve got an off-market campaign looking for… We do mailers. We’re doing very, very well, and we teach it in my course, how to find off-market deals. But if you’re dealing with brokers, don’t expect a nine cap, like he just described. It’s not gonna happen. Not today.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Maybe when the contraction happens but not today.

 

Beau Beery:              That’s right.

 

Rod Khleif:               Yeah.

 

Beau Beery:              Alright, fifth and final thing you should never do with a broker, this goes back to, you’re never going around and so forth. But I wanna make sure, this is not a broker’s greed… I’m trying to teach how you get more deals. This is part of it.

 

Rod Khleif:               Right.

 

Beau Beery:              The fifth thing is don’t ever ask the broker to reduce his already contractually obligated commission, in order to solve an issue that came up in the transaction to close. That has nothing to do with the situation. Let me give you examples.

 

Rod Khleif:               Okay.

 

Beau Beery:              You’re involved in a deal, and let’s say that the seller gave you a document that you relied upon that ended up not actually being totally true. The seller thought it was true. It’s not true. The attorneys reviewed it. It’s gonna cost the buyer some money… Why come to the to the broker and say, “Come off your fee, the equivalent of 30%.” What does that have to do with me? I just brought you the deal I brought the two of you together. We’re the ones making this happen.

 

I’m certainly willing to budge. I’m certainly willing to throw into the deal but the proportion that brokers sort of get asked to…

 

Rod Khleif:               Yeah, no, it’s out of whack. It happens a lot in residential as well.

 

Beau Beery:              True.

 

Rod Khleif:               The bottom line is, guys, if you want more deals from the broker, you got to think about these things. I mean, I have to be honest, I’ve had broken make concessions before. I did it on my personal residence, but in the multi-family space, if you want deals from a broker, you have to take very good care of that broker.

 

This just goes as commonsensical, this just goes with the territory and if it’s not the broker’s fault for whatever is happening… You know, there you go…

 

Beau Beery:              Yeah. The key word there, Rod, is proportionate.

 

Rod Khleif:               Okay.

 

Beau Beery:              All of us are deal-makers.

 

Rod Khleif:               Right.

 

Beau Beery:              I’ve certainly budged on commissions. All the time, I’m happy to do so because if both parties are sort of taking a hit. It’s when you’ve got to $10 million deal and there’s a $100,000 discrepancy, so a 1% discrepancy and you come back to the broker and are asking him to take a 30% hit. That doesn’t make any sense.

 

Rod Khleif:               Yeah. No, I get it. I get it. Now that makes complete sense… Alright, let’s move in to, what to ask for before you start your due diligence? Or really, during due diligence.

 

Beau Beery:              Okay.

 

Rod Khleif:               Go ahead and speak to that, please.

 

Beau Beery:              Sure. Some of the things I that I asked for, that I always want for the buyers to ask for, obviously, income statements or tax returns would be sort of like the gold seal if you will.

 

Rod Khleif:               Sure.

 

Beau Beery:              I like them for the previous two years and year to date. So like right now would be 2015, 2016, year to date 2017.

 

Rod Khleif:               Yup.

 

Beau Beery:              Now, obviously, when you’re looking at tax returns, there’s a lot of fluff sometimes that are put in tax returns in order to reduce taxes. So you ought to kinda peel through some of those things and remove them. But tax returns are usually far more accurate.

 

Some of the 75 plus units investors, they’re using really good property management software so their income statements are pretty reliable. It’s once you get under 50 units that you get the Excel spreadsheet sort of general…

 

Rod Khleif:               If you get that. Right. If you get that.

 

Beau Beery:              Right.

 

Rod Khleif:               No, I get it.

 

Beau Beery:              Those are the top ones. That’s when you really want tax returns.

 

Rod Khleif:               Okay. Now, you’re not always gonna get them but at least if you get tax returns, you can assume that the income portion is accurate. You can tie in expenses. It’s better than just that seller telling you what the expenses are, and you hoping that you’re accurately projecting what they should be.

 

Beau Beery:              Right.

 

Rod Khleif:               What else?

 

Beau Beery:              Obviously, a rent-roll to me is probably one of the most important things because often times… I’ve done tons of deals, just in the last couple of years in which all we have was a rent-roll.

 

Rod Khleif:               Right.

 

Beau Beery:              With today’s technology, and data, and information that’s available to you, if you had no expenses whatsoever for the property, you can even sometimes have pretty good accurate estimates. The National Apartment Association puts out a report that I read cover to cover, every single year, on operating expenses. That’s across like 4,000 properties. It’s broken up by different sections of the US, by age, by size, by everything.

 

Pretty close you can come up with it, all the way down to administrative expenses to property management, to all that stuff, and create your own pro forma on the expenses. If you have the rent-roll, that’s big time. Because there that has the unit mixes. It has what kind of deposits are there. Sometimes, if you got too little deposits you better have really good rental criteria, or be very cautious. Or if you have too large deposits per person, that could mean there’s a lot of bad credit tenants in there.

 

Rod Khleif:               Right.

 

Beau Beery:             So you wanna get in some replacement. Start and end dates are pretty important on the on the rent-roll. You’re looking for the better to have scattered end dates.

 

Rod Khleif:               Right. You don’t want a bunch of leases expiring in the same month that can be…

 

Beau Beery:              Yeah.

 

Rod Khleif:               Something to be concerned about.

 

Beau Beery:              Bank statements to me are big.

 

Rod Khleif:               Back to rent-roll for just a second, buddy.

 

Beau Beery:              Yeah.

 

Rod Khleif:               I apologize.

 

Beau Beery:              Sure.

 

Rod Khleif:               In fact, maybe you’re gonna talk about it now. But yes, the rent-rolls are very, very important. And by the way, that report from the National…

 

Beau Beery:              Apartment Association.

 

Rod Khleif:               Apartment Association. Sorry, brain fart there for a minute.

 

Beau Beery:              [chuckles]

 

Rod Khleif:               That report, we just gave that to our coaching clients. It is killer and highly recommended to use that to come up with those percentages.

 

Beau Beery:              Right.

 

Rod Khleif:               I mean to utilize those when you’re when you’re if you don’t have the expenses you can use those averages to come very, very close to what they should be. Correct?

 

Beau Beery:              That’s correct. Correct

 

Rod Khleif:               Alright. Back to rent-roll from one second, the one thing that’s critical to remember about rent-roll with all the importance of utilizing it and having it, is that you make sure that you’re looking at economic occupancy. Because just because they’re on that rent-roll doesn’t mean they’re paying.

 

Beau Beery:              That’s right.

 

Rod Khleif:               So speak to that. Maybe that’s what you were gonna talk about with the bank statement.

 

Beau Beery:              Yeah. Bank statements clear that. Right?

 

Rod Khleif:               Right.

 

Beau Beery:              Because a rent-roll is an owner generated statement.

 

Rod Khleif:               Right.

 

Beau Beery:              Even though a lot of the big guys would never ever fluff stuff like that, the bank statement… Listen, if you’ve $20 million for an asset, you’re probably gonna ask for bank statements to verify stuff ‘cause you’d…

 

Rod Khleif:               Yeah, but like with the 30 unit owner, or 20 unit owner, they may be just giving you an old one. And two or three of those people have moved out, or two or three of them aren’t paying, or whatever.

 

Beau Beery:              Right.

 

Rod Khleif:               It may not even be nefarious it just may be incompetence.

 

Beau Beery:              Right.

 

Rod Khleif:               Anyway, please continue.

 

Beau Beery:              Bank statements will sort of solve that.

 

Rod Khleif:               Right.

 

Beau Beery:              In flows, and the out flows of the property, and you wanna match them up with the income statements and the rentals.

 

Rod Khleif:               Right.

 

Beau Beery:              And that’ll cure… If there’s delinquencies they’re not telling you about…

 

Rod Khleif:               Right. It’s critical to match those up, guys. It is the point. You’ve got to get bank statements so you got to make sure that money is actually coming in, not just on the rent-roll.

 

Beau Beery:              If you can’t get bank statements, my next thing to ask for is a list of delinquencies. They should be able to come up with what each tenant owes.

 

Rod Khleif:               Correct.

 

Beau Beery:              And you wanna look at that. Obviously, you know what you’re looking for there. I like to collect the last three months of the utility bills that the actual owner pays. You know, for the clubhouse, for the vacants, for the exteriors. I like to match that up with the income statements, to make sure that’s good. And just in general, to make sure I understand exactly what I’m responsible for.

 

Rod Khleif:               Sure.

 

Beau Beery:              Those are usually pretty big percentage. Obviously, you wanna ask for all vendor contracts; the lawn guy, the pest control, the laundry. What you’re looking for there is sort of the nitty-gritty in the contract, and can you get out of things in order the cost.

 

I just had a big, big deal I was working on, where we thought that the cable agreement was cancellable with 30 days notice. It ended up being it really wasn’t, and this was like a 10-$12,000 a month cost, property-wide. So it’s a real sort of kicker in the due diligence period, because we had a kind of negotiate that part of it.

 

It’s not just enough to say, “Yeah, cable is cancellable.” Or the lawn guy, give them 60 days notice. Whatever it is, read the fine details because those are… Listen, just a $1,000 a month for landscaping.

 

Rod Khleif:               Sure.

 

Beau Beery:              Well, that’s 12,000 a year, you divide it by a seven or eight cap, tell me what that’s worth and that’s a huge deal.

 

Rod Khleif:               That’s a lot of money.

 

Beau Beery:              Right.

 

Rod Khleif:               That’s a lot of money. Yeah… So laundry, all of those things. You got to read those contracts, or have an attorney read them.

 

Beau Beery:              Yeah. The next thing is the most recent property tax bill. Now, you may say Beau, you can get that off the internet, you can get that off the property appraiser. It’s very rare, but I’ve seen instances in which the property appraiser wasn’t an updated, or just had an error, just like a total blanket error. Or sometimes, folks sometimes rely on, in some municipalities; they’ll have a partial number for the intangible tax, and sometimes for the partial one…

 

Rod Khleif:               Wow. If you look at the intangible you’re in deep doo-doo, oh… That’s very… I haven’t heard that before, I really appreciate that one. That’s good.

 

Beau Beery:              Yeah.

 

Rod Khleif:               So get the bill.

 

Beau Beery:              Get the bill.

 

Rod Khleif:               Okay.

 

Beau Beery:              If they have a prior title policy, or survey…

 

Rod Khleif:               Sure.

 

Beau Beery:              Sometimes, those are helpful, just preliminary to look at. If not, they provide savings when you’re going to…

 

Rod Khleif:               Sure, definitely the survey. Yeah, you definitely wanna get those if you can, Good.

 

Beau Beery:              Yep. Copies of all the leases and any amendments, and sometimes that doesn’t mean… For instance, if you’re getting 50, 75 units or more, often times you’re just going into the clubhouse, and you’re spending a couple days there.

 

Rod Khleif:               You’re on conference room table and you’re going through leases. By the way guys, if you’re in the 50 plus unit range, that’s one of the things that many property managers will help you with. They will go in and do your…

 

Beau Beery:              Bring them with you.

 

Rod Khleif:               In office due diligence. Yeah, bring them with you. Let them help you with that. You guys know I’m a huge proponent for self-management, but that’s said, case is light on these larger properties and if you do or if you’re just getting started, your first one or two assets, I highly recommend using a property management company until you’re up to speed and fully understand the business.

 

Beau Beery:              Yeah.

 

Rod Khleif:               They can be a huge asset when you’re going through due diligence in a larger property.

 

Beau Beery:              Those leases are, those are more sort of hidden nightmares. You need to read all of them, and don’t get complacent. Once you look at 10 leases and you think, “Oh yeah, the next 10 are gonna be the same… Meh, I’m good there.” I mean, you need to read them all to make sure because sometimes, property managers, especially under a hundred units, sometimes, they’re given liberty by the owners to do as they please to get a lease.

 

They may have striking out some of the main, main language for some tenants. There might be reduced deposits. There could be little sweetheart deals…

 

Rod Khleif:               Free rent after a year, for a month. Yeah, we’ve seen it all, so absolutely.

 

Beau Beery:              Yeah.

 

Rod Khleif:               You read every single lease, if you’re doing it yourself.

 

Beau Beery:              Absolutely.

 

Rod Khleif:               For sure. Okay.

 

Beau Beery:              Alright. Last few things, a list of capital expenditures done over the last five years. Now, some things may be obvious to you when you’re doing your physical walk through.

 

Rod Khleif:               Sure.

 

Beau Beery:              There may be some other stuff you just didn’t know happen. Try to get the contracts or the deals, or the invoices that were signed for those. Just so you know, if nothing else, to be able to schedule in your CRMs.

 

Like my CRM, I can schedule anything I want in there, so I actually have properties in my CRM and I can schedule, “Okay, three years from now, I need to have the septic done.” Or “Five years from now I need to have this done”, whatever it is. That stems from getting those CapEx expenditures from the seller.

 

Rod Khleif:               Right. Right. If you’re getting bank financing, they’re typically gonna want you to escrow something for future CapEx expenses anyway.

 

Beau Beery:              That’s right.

 

Rod Khleif:               By the way, what is that amount typically, in your experience?

 

Beau Beery:              On the… ?

 

Rod Khleif:               On CapEx on a…

 

Beau Beery:              Like a pro forma?

 

Rod Khleif:               Yeah.

 

Beau Beery:              The industry average, on what people are actually spending per year when you look at National Apartment Association, is between 8-$900 a unit. However, banks and buyers are typically using anywhere from 250 to $500 a unit when they’re putting a pro forma depending on what’s been done.

 

Rod Khleif:               Okay. Okay. Yeah, I thought it was under 500.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Okay.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Alright. I think the last thing was leases or what was the last thing you said?

 

Beau Beery:              I got these last two are environmental reports and…

 

Rod Khleif:               Of course.

 

Beau Beery:              There’s nothing really to expand upon there.

 

Rod Khleif:               No, no. Let me add one thing there.

 

Beau Beery:              Yes.

 

Rod Khleif:               That is guys, you get what’s called a phase one environmental report. Now, if you’re out there doing off market deals, and you get a seller financed deal, still get the environmental report. Because, I will tell you the way it works.

 

They’re checking for toxicity in the soil and the way the EPA works is if you own the property, it doesn’t matter when the oil tank was put in, who caused the damage does not matter. You as the owner are responsible; whoever owns it at that moment. So if you do a seller financed deal, normally, you wouldn’t get any third-party reports. You wouldn’t probably get an appraisal or anything like that. You always get a phase one. Okay?

 

This is Rod’s opinion but I’d rather spend 1000, 1500 bucks for that right now, then have a $500,000 clean up because you didn’t.

 

Beau Beery:              That’s right.

 

Rod Khleif:               Okay.

 

Beau Beery:              Yeah, just a quick 20-second war story.

 

Rod Khleif:               Okay.

 

Beau Beery:              Back in the day, I bought a deal that I knew had environmental issues ‘cause they had one of those vacuum systems on it. I went into the county of where that property was, talked to the EPA guys. They told me all about it. It’s all covered under the program… yada, yada, yada. They never told me about a second leak in there. Stupid me, I never got a phase one. It was very early on because I already knew it’s contaminated. It was already covered by the state, and I was sitting in front of actual government officials, and they never mention that other thing. And guess who gets it? Even though they know it was caused by somebody else. Doesn’t matter.

 

Rod Khleif:               Doesn’t matter.

 

Beau Beery:              Don’t matter.

 

Rod Khleif:               Even if they know who did it. One other caveat, since you said that, ‘cause that reminds me of something. Anytime guys, that you are dealing with a government official of any kind, an inspector, EPA anything like that, you always, always, always reduce the conversation to writing. You send an email and say, “Here’s what we discussed and agreed upon.”

 

You never ever, ever, ever leave it verbal. They talk to a lot of people. Sometimes, they have an agenda. You just make sure you always reduce it to writing. Building inspectors, if you’ve got code violations or anything like that, you always reduce it to writing. “Please, write that one down.” It’s very, very important when you’re dealing with any governmental official.

 

Beau Beery:              Rod, you just gave a $300,000 tip. That’s the average clean up.

 

Rod Khleif:               Yeah. Well there you go.

 

Beau Beery:              [chuckles]

 

Rod Khleif:               Alright. No, I mean, this really applies to anything. If you’ve got some zoning issue, if you’ve got some environmental issue, if you’ve got a building department issue, anything, you make sure you reduce it to writing. I can’t tell you how often that saved me.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Okay.

 

Beau Beery:              Last one, Rod. I always ask for a trial balanced ledger. Which is a report, and sometimes it’s called differently in different programs but this would be a report that shows all of the individual repairs per unit.

 

Now, you don’t need to look through every single repair of every single unit but you can find common themes that are happening in the property. Because when you get an income statement, they will have a category called repairs and maintenance.

 

Rod Khleif:               Right.

 

Beau Beery:              You know, and it’s equivalent to five…

 

Rod Khleif:               It’s a catchall. It’s a catchall. It’s got everything.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Right.

 

Beau Beery:              It’s got everything in there.

 

Rod Khleif:               Right.

 

Beau Beery:              And you can ask the property manager, “Hey, what are your common expenses that you see or the common calls that you get?” You’ll get one answer but that trial balance ledger or whatever the equivalent is, in that property financial software that will tell you like boom!

 

Rod Khleif:               Yeah. If you see them replacing a particular item regularly, you can anticipate it’s gonna get replaced in every single unit.

 

Beau Beery:              Yep.

 

Rod Khleif:               That’s what you’re referring to. Correct?

 

Beau Beery:              That’s correct.

 

Rod Khleif:               Or a repair of some sort that happens over and over again.

 

Beau Beery:              Yeah.

 

Rod Khleif:               That’s good. That’s very important. Let me ask you a question.

 

Beau Beery:              Sure.

 

Rod Khleif:               I tell my coaching clients to always try to find out past contractors that worked on the property, and actually have conversations with him. Find out what they’ve encountered. Find out what things could pop up in the future that they’ve seen in the past. Maybe they’ve scope the sewer lines, and they know that something… there are roots coming in, at some point it’s gonna be a problem. Do you recommend that as well?

 

Beau Beery:              Yeah, absolutely. That’s easy to do.

 

Rod Khleif:               Right.

 

Beau Beery:              Nobody would stop you from doing it when you’re in due diligence and you’ve received sort of the… Like the trial balance ledger would tell you who they paid…

 

Rod Khleif:               Right.

 

Beau Beery:              And what they did. You can call those guys up…That’s super forensic.

 

Rod Khleif:               Right.

 

Beau Beery:              But listen, if you’re putting millions of dollars into a deal, why not do it?

 

Rod Khleif:               Thank you. Yeah. What you can’t see, you can’t see.

 

Beau Beery:              Yeah.

 

Rod Khleif:               If you don’t know something’s there… That’s why it’s a great idea to look at the capital expenditures maybe they done some foundation work that you can’t see. We’ve had that happen before. Maybe there’s a drainage issue that they haven’t solved, they’ve patched it, and you don’t see it because it’s not completely obvious. But those things can be very, very expensive.

 

Okay. Good stuff. So what’s next? What sort of a buying team do you recommend having? And why?

 

Beau Beery:              Yeah, even before going into contract, if you have the relationships, and the right folks who can show up quickly, I always suggest when you’re walking the property, bring a property manager. Immediately you’d be shocked at all the things they can tell you about the physicality of building, the immediate area, the market in general, that could be totally contradictory to what you’re seeing an offering memorandum, or what you think yourself.

 

Rod Khleif:               That is very, very good advice. Guys, if you don’t have 3- 400 units you should always bring a property manager with you to get their market knowledge to get their experience.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Now let me ask you a question, back on that note. Any advice you have for finding the best property managers for a particular property?

 

Beau Beery:              Yeah. When I’m over 100 units I don’t wanna mess around.

 

Rod Khleif:               Right.

 

Beau Beery:              It’s just not worth it and so I’m going for big dogs. I’m going for people who have a lot of units under their management. Now, there could be some uneducated thoughts out there that, “Oh, if they’ve got a ton of properties, they’re not gonna be thinking about mine… Blah, blah, blah.” That’s just not how it works. If they don’t have a bunch of properties there’s probably a reason why they don’t have a bunch of properties.

 

I want people who got lots of properties, for two reasons, number one, people think they’re good. And number two, especially when there’s a lot of like kind stuff, they’re able to pool, from tremendous amounts of marketing. So if they’ve got six or eight conventional assets in a market, that would be between 100 and 300 units, and you’re buying one of those, like there’s some good stuff there. You can really get some great cross marketing, if you will.

 

Rod Khleif:               Sure.

 

Beau Beery:              Once you get under 50-75 units, it’s really kind of a toss up. Like you always wanna have the best manager in the market, but sometimes, depending on the type of asset, you don’t wanna go with one of the big regionals, or nationals, who’s not gonna give ______ [bad audio]

 

Rod Khleif:               No. I agree. No, I agree.

 

Beau Beery:              [bad audio] A lot of those local guys who have sort10, 20, 30 unit communities, those guys can knock it out in a ballpark for you. I certainly would at least mix them into the conversation.

 

Rod Khleif:               Absolutely. Now, are there any screening sorts of thoughts that you might have about what to look for beyond their size requirements, or do you just go off recommendations? What do you recommend to clients?

 

Beau Beery:              I’d like know who they’re managing for, and the likelihood is, I know some of those folks, or if not, you’re just calling him up, and you’re asking, “Hey, do you mind if I give such and such a call? You manage for them. I know those guys, can I ask them about you and so forth?” No one’s gonna tell you, no. If they’re telling you, no, that’s red flag number one.

 

Rod Khleif:               That’s… Yeah. No question. Right. Good. Good.

 

Beau Beery:              You can find out more from those customers, than any kind of other research you could do.

 

Rod Khleif:               I like it. Alright, I like it. Other team members?

 

Beau Beery:              Other team members. If you don’t have one already you need to be best friends, or have a phenomenal maintenance crew whether it’s one guy, two guys, whatever it is. They’re taking care of some of your properties. Bring them along with you. They’re super, super knowledgeable.

 

When I walk properties with folks, I think I know what I’m doing but they’re always… Like they’ll go and point something out, or touch something, or bring something down, and then I’m just like, “I never really thought about that.” But these guys, they’re the ones who have taken all these calls, and doing all the work orders. They know what to look for. It’s just super important to bring them with you.

 

Rod Khleif:               Absolutely. Or at the very least to GC, bring somebody you know, bring a GC if you don’t have a maintenance guy.

 

Beau Beery:              That was the next guy I was gonna say.

 

Rod Khleif:               Oh, next on the list. Okay.

 

Beau Beery:              Yeah.

 

Rod Khleif:               If you don’t have a full time maintenance guy yet, then bring a general contractor. But ultimately, you don’t… You can’t afford… You wouldn’t wanna pay a GC to do maintenance but they can at least flag things that you may not see.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Potential upcoming maintenance related issues; things that they’ll see that you’ll gloss over it, unless you’ve been doing this a very long time.

 

Beau Beery:              Yeah. I tend to use the maintenance guys for some of the very, sort of decentralized repair type stuff. I bring the contractor along with roof structure, slab, parking lots, like major stuff like that. They know what to look for there.

 

Rod Khleif:               Sure. Good.

 

Beau Beery:              And the other guy that I always try to bring, like in my second or third sort of tour of you will, like when I know I want the asset is my banker. I want him to see the asset, smell it, touch it, like I want him to know it like I know it, and get him involved in the deal.

 

Rod Khleif:               That’s very good advice. Very good advice. That’s a good one. Now, let me ask you this, let’s talk about financing for a second. I’m sure your doing a lot of Fannie and Freddie type stuff but when you say banker, are you talking about your mortgage broker? Are you talking about regional banks, if they’re dealing with conventional… They’re dealing with the regional or small bank?

 

Beau Beery:              Again, depends on the asset. Right?

 

Rod Khleif:               Right.

 

Beau Beery:              If it’s a localized asset that, for instance, I would say probably under 60-70 units, I like at least considering other local lenders. They can give some pretty good terms.

 

Rod Khleif:               Right.

 

Beau Beery:              Once you get into the bigger arena, that is tough for the local bankers to sort of understand it, and so you’re talking to big boys. I still want one of the big boys. I don’t care if he’s a state over, or a couple of states over. I’d like him to come down, and kind of walk this thing with me and take a look at it.

 

These guys aren’t just bankers. They’ve underwritten tens of millions, and sometimes billions of dollars. They see things sometimes that you don’t. _______ [bad audio]

 

Rod Khleif:               Sure. Sure. They’ve forgotten things that we won’t even…

 

Beau Beery:              Yeah.

 

Rod Khleif:               We won’t know for a long time. No, I get it.

 

Beau Beery:              They’ve taken back lots of properties and know why they’ve taken them back, sometimes, quite frankly, because of the physicality. They can see things from other war stories.

 

Rod Khleif:               Yeah. Okay. Okay… Well listen, we are unfortunately running out of time.

 

Beau Beery:              All good.

 

Rod Khleif:               I was hoping we could through what to look for in the financials. But maybe we can do that on another episode.

 

Beau Beery:              Sure.

 

Rod Khleif:               Guys, I really like Beau, and I hope you guys, if you’re interested in buying any property in the northern half of Florida, or the whole state… Do you handle the whole state or primarily North?

 

Beau Beery:              Central and North Florida.

 

Rod Khleif:               Central and North. So if you have any interest there, definitely check him out. He’s a good guy.

 

Thanks for being on the show, my friend. You added a ton of value.

 

Beau Beery:              Yeah, man, I appreciate the opportunity.

 

Rod Khleif:               Absolutely. Alright, take care.

 

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Thank you for listening to the Lifetime CashFlow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

 

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Ep 141- How To Get Brokers To Bring You Deals – Rod Khleif with Beau Beery

 

 

Welcome. This is the Lifetime CashFlow Through Real Estate Investing Podcast. This is where you’ll learn strategies to help you achieve lifetime financial freedom through real estate investment. Your host, Rod Khleif, has owned over 2,000 homes and apartments. And he brings experts in all aspects of real estate investment and management on to the show. Now, here’s your host, Rod Khleif.

 

Rod Khleif:               Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled you’re here. I know we’re gonna get a ton of value from the gentleman we’re interviewing today.

 

He’s name is Beau Beery, and he is owner of a commercial real estate brokerage up in Gainesville, Florida. I’ve known Beau for quite a while now. I will tell you, he adds a ton of incredible content to people he’s doing business with. I get emails from him regularly. He’s co-owner of a 90 plus agent, award winning real estate brokerage firm. His specialty is the purchase and sale of multi-family assets, which is what we talk about on this show.

 

We are gonna get a ton of value from him today, Beau, thanks for being here, buddy.

 

Beau Beery:              Yeah, man, no problem. I’m happy to do this. This’ll be fun.

 

Rod Khleif:               Yeah, this will be a lot of fun. Now guys, we are gonna dig in deep to really the acquisition process, the due diligence, what to review before you go in. I mean what to review once you’re in the due diligence period.

 

Beau is an expert at all this so we’re gonna dig deep on this. Some of this content may not be as fluffy as you like but it’s really important. So hang in there with us because if you’re serious about this business this is information you must have.

 

Beau before we start, tell us a little bit about your background, in how you got in the business and a little bit more about you.

 

Beau Beery:              Sure. My first sort of real job, if you will, was I worked for Trammell Crow Residential, back in the late 90s. At least at that time, they were one of the largest apartment developers in the country. I was just On-Site Manager of a 400 unit apartment community.

 

I did the leasing, I did the management, and it was there where I got sort of that first taste of watching 1000 people pay for a $30 million asset. I thought to myself, “Man, I got to get in this business. This is amazing.” I never saw the owners. They’re just kind of a ‘on autopilot’.

 

Rod Khleif:               Right.

 

Beau Beery:              Through that process Trammell Crow paid for education. I got my real estate license. I then went back and did my Master’s Degree in real estate from the University of Florida, which is one of the top five graduate real estate programs in the country. I’d also done my undergrad in marketing from UF. Upon graduation, I worked for a local, or I guess, the main local developer here in town. Just did various shopping centers, office buildings, apartments.

 

In 2011, I joined forces with Todd Rainsberger, J Parrish and Susan Parrish to acquire Coldwell Banker, here locally. Ever since then I’ve been doing brokerage for the masses, if you will. My specialty is multi-family. It’s what I love. It’s what I know. It’s sophisticated, there’s numbers involved. There’s no emotions. It’s just business and numbers, and that’s what I like.

 

Rod Khleif:               Yeah, it’s very empirical. You have to leave the emotions out of it. That’s what’s so beautiful about it, if you understand the numbers. All things being equal of course, you wanna check out the areas and… All things being equal but it really is numbers driven.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Let’s get right into it. Let’s talk about the important things you have to do prior to going to contract. Let’s go right into that.

 

Beau Beery:              Let me just put a couple of things out there, even before that is, generally speaking, any kind of multi-family asset that is on a website, that is email blasted around, that’s a big caution. I would go into those slow, and with a lot of trepidation because most good multi-family brokers or let’s just call it, the best of the best. They’ve already got a pool of buyers that they know, have done business with, that show up to closings. Typically, when something that’s any good at all hits the “market”, if you’ve seen it, come across it on your email, or it’s own websites, it’s probably already been shopped around.

 

Inherently, it’s already got something to overcome, or what have you. Now listen, they’re still good deals out there that you may come across the websites. It happens. Some brokerages, just by the nature of the way they do business, they put everything out there, period, no matter what. There’s few of those but there are some things you can find on there.

 

I don’t see any other way to find good assets other than, number one, you got a broker or several brokers that you’re working with on a regular basis, and you’re very close with, that you’re keeping contact with them. I’ll tell you how you do that. Or secondly, you’re doing that work yourself. Frankly, that has to be full-time. Finding good assets, that is a full-time job.

 

Rod Khleif:               Sure.

 

Beau Beery:              That is what I do all day long. If you’re not gonna have some brokers that are in your pocket, that are in love with you, and you’re in love with them, you’re the one that needs to find the properties. You’re the one making the phone calls all day long. You’re the one that sort of drip marketing yourself into them, and you’re keeping contact with them.

 

That leads me to, how do you get brokers to pay attention to you, and to bring you deals. Do you want me to go into that, Rod?

 

Rod Khleif:               Absolutely. No, let’s do that next because everybody’s encountering that right now because if you haven’t taken down a deal, for example, your new. It’s very difficult to get a broker to take you seriously. I tell people on the show here, it’s very important to follow up with a broker if they send you a deal.

 

I want you to dig in from a broker’s perspective, how does somebody get noticed? How does somebody get taken seriously?

 

Beau Beery:              Good. Let me give you five things that you should do and five things that you should never do.

 

Rod Khleif:               Okay. Awesome.

 

Beau Beery:              Some of the things you should do are: you need to be updating your broker a couple times a year, just to stay on top of their mind. Now that seems obvious, but let me make sure you understand. You are only as good… As a broker, I tell my brokers this all the time. You are only as good as your last touch with your customer.

 

And likewise, as an investor, you’re only as good as your last touch with your broker. Because, listen, you could think you have the best relationship in the world with a broker and vice versa, and that guy could be at some social meeting or a dinner event, and he runs into some other investor, and they’re having a beer, and they’re talking about, “Oh, I used to live there.”  “Oh, I know that guy, and I know that guy.”

 

And all of a sudden, it’s like the next day they’re best friends. That guy gets some apartment complex that he’s doing a BOV on, and guess who’s he gonna call? It’s the guy who is fresh on his mind. I’ve seen it happen a million times. I’ve lost tons of deals myself with customers who I thought are like my blood almost. It’s not someone who’s trying to be a prick.

 

Rod Khleif:               Right.

 

Beau Beery:              It’s human nature. Like you had offered someone…

 

Rod Khleif:               Sure. Sure. If you find somebody new, and they tell you they’re interested in deals… By the way guys, a BOV is a brokers opinion of value, for those of you who didn’t know what that meant.

 

But absolutely, that recurring contact is critical. I tell people get a CRM and use a CRM so you stay in front of these people, you need to stay in front of. CRM by the way guys, is client relationship management software and there’s lots of free ones, or practically free ones online.

 

If you’re gonna do this business, you have to do it for the long game. You have to develop those relationships and stay on top of them. We’re talking about brokers now but the same thing applies to bankers and lenders.

 

Beau Beery:              Right.

 

Rod Khleif:               But let’s go back to brokers. Stay in front of them regularly. I think two times a year frankly is, in my opinion, not enough but I think every couple of months. Every three months you send him an email to say, “Hey, I’m still looking how are you?” Or a phone call, or have lunch, or whatever.

 

Beau Beery:              Yeah. Absolutely. From a broker to an investor, we have to limit ourselves so we aren’t annoying because those investors are getting calls from dozens of brokers. But once we’re in the reverse, when the investor is keeping in touch with us… It’s like you can call me every three or four weeks. Like that’s great. That shows me motivation. That shows me that you’re in the game to win. Because ultimately, all we give a crap about is that you show up to closing.

 

Rod Khleif:               That’s right. You don’t get paid unless they’re closing papers get signed.

 

Beau Beery:              Right.

 

Rod Khleif:               Motivation, I’m sure, is a big factor in your decision-making as to who you’re gonna deal with.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Yes? Okay.

 

Beau Beery:              You’re right.

 

Rod Khleif:               What else? You said five things.

 

Beau Beery:              Number two is, if you don’t know that broker he doesn’t know you, show him that you have a proof of funds. That could be a letter from your lender. It could be something from your CPA, or financial advisor but something that says, “Hey, this guy has enough assets; enough ability to buy a $5 million complex, a $2 million complex, $20 million complex.” Because we get calls all the time and emails all the time, just like you do.

 

Rod Khleif:               Sure.

 

Beau Beery:              From folks saying, “Hey, we’re looking for an apartment complex, value add, hundred plus units… When someone shows us a financial statement or shows us a bank account… You can have their information blanked out or whatever.

 

Rod Khleif:               Sure.

 

Beau Beery:              We’d know that these guys have the capacities, that sort of check marks off that part of it.

 

Rod Khleif:               Guys, let me interject… That’s great. Fantastic advice. Let me interject something. Remember this, guys, this is a team sport, okay? So if you’re out there, and you don’t have the proof of funds then go find somebody that does. Bring them in on the team.

 

If the net worth requirement isn’t there, find somebody, put them on the team, and get the net worth requirement that you need to get the financing, ‘cause it’s a team sport. This is not a singles game… Please continue.

 

Beau Beery:             Yeah. Number three, and this is a big one.

 

Rod Khleif:               Okay.

 

Beau Beery:              When we bring you an investment, I need you to act extremely fast on the deal. Now, let me make sure you understand what I mean by that. I don’t mean that in 48 hours you need to know everything about the property, and turn an offer that’s… Bam, bam, bam.

 

I just need to know in 48 to 72 hours, whether you want to take a run at this or not. Because, you have to understand, if I’m bringing you something off market, then as a broker, I don’t wanna look incompetent to my seller.

 

First of all, if I’m coming to you, it means that you’re real deal guy that I believe you can bring the best value to my customer who I’m representing. So if I come to you, I can’t just like talk to one or two people and let them take two weeks to make a decision, whether or not they wanna go see it or underwrite it. If it’s a no, that’s totally cool. I respect that. But tell me quickly, alright?

 

Rod Khleif:               Yep.

 

Beau Beery:              … That’s a killer.

 

Rod Khleif:               No. That’s so simple. That’s so obvious but so important for people to hear. So that’s awesome. Great.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Keep going.

 

Beau Beery:              Alright. Number four, if an unlisted seller, someone who’s got a property that I found, it’s not on the market. He’ll take an offer. If that guy won’t pay me or won’t pay the broker for procuring, we need to have an understanding before I even bring you something like that, that you’ll pay me, because this is an unprotected world, sometimes, in doing some the dealing from the broker’s standpoint. So if the best listings are not on the market then that means there’s not usually, sometimes, the sign listing agreement up front, or…

 

Rod Khleif:               ‘Cause this market’s really hot guys.

 

Beau Beery:              Yeah.

 

Rod Khleif:               You’re talking about integrity.

 

Beau Beery:             Yeah.

 

Rod Khleif:               Bottom line. If you haven’t got integrity you may get one deal, but this is a small world. I mean it is. This commercial real estate world is a small world

 

Beau Beery:              Right.

 

Rod Khleif:               You screw a person once or twice you’re done.

 

Beau Beery:              You’re dead forever.

 

Rod Khleif:               You’re dead forever.

 

Beau Beery:              Definitely.

 

Rod Khleif:               Basically. What we are saying guys is, if he has an off-market listing, and he brings you to that seller to put the deal together, ‘cause the… Sellers are funny guys, you get sellers that just refuse to sign anything until you show them a contract. They won’t list it, but if you bring him a contract, great. But you got to protect you’re broker. You’ve got to make sure they get paid. Alright. Awesome.

 

Beau Beery:              That’s right. Listen, no broker is going to get paid from a seller but then tell you he’s not, and then have you pay him so he gets double commission.

 

Rod Khleif:               Right. Right. No…

 

Beau Beery:              Like that’s gonna show up on a ________ [bad audio]

 

Rod Khleif:               Oh, yeah. No, no, no, no. Integrity goes both ways but brokers are held to a very high standard, and governed, and watched, and regulated so that’s not gonna happen. But no, if he’s not getting paid from the seller, he’s gotta get paid, so don’t…

 

Beau Beery:             That’s right.

 

Rod Khleif:              Don’t be pennywise and pound-foolish.

 

Beau Beery:              Alright, the fifth thing that you should do is close on deals. Like the more you close, the more deals you’ll see from more brokers. Now, if you come across something that just… 55 dead bodies were under the building and there was just horrible, horrible things going on that was unbeknownst to anybody, I get if you don’t close.

 

Rod Khleif:               Sure.

 

Beau Beery:              Or something needs to be redone or re-traded but generally speaking, the more you close the more dealers you’re gonna see.

 

Rod Khleif:               That’s a no-brainer. Once you close, then you’re really taken seriously. That’s so critical but like you said, I mean if the due diligence shows things that weren’t disclosed, or there was misrepresentation, significant, not minor stuff then that changes things a bit.

 

Beau Beery:              That’s right.

 

Rod Khleif:               You should at the very least try to re-trade or renegotiate. Alright, awesome, awesome.

 

Beau Beery:              Alright, five things you should never do, Rod.

 

Rod Khleif:               Okay.

 

Beau Beery:              Never, ever go a round a broker directly to their client.

 

Rod Khleif:               Again, integrity. Integrity.

 

Beau Beery:              I shouldn’t have to say this but it goes on all the time.

 

Rod Khleif:               Sure.

 

Beau Beery:              Sometimes, a guy thinks he’s being innocent. Sometimes, he is just trying to save something but that’s just the worst thing you can do. Listen, you may win in that one situation, but you’re gonna lose overall, let me tell you.

 

Rod Khleif:               Same, same, same. It really is. It will shock you guys, how small this world really is, this commercial multi-family space. Yeah, that’s just, in any business, frankly, you just you just do the right thing.

 

Beau Beery:              Yeah. Alright, number two, kind of goes to what you should do but don’t renegotiate or re-trade a deal with a seller unless there’s some huge surprise. I just hit on this but let me give you a couple of other examples. There are folks for whom, have a business plan. Whose business plan is actually to put deals under contract, at whatever they can, just so they can get off the market as soon as possible.

 

They get through 44 days of the 45 due diligence period. They’ve done… They’re in close communication or action. They’re acting like they’re super into it that the seller’s making plans with the money and all the stuff. And all the sudden, “I need a million dollars off bro, or I need $200,000 off.

 

Like horrible, horrible, horrible thing you can do. Number one, you will never do another deal with that seller. Number two, I will never bring you another deal. Number three, it just makes you look bad, and that word spreads like wildfire, man. The most dangerous thing in the world, Rod, is the stuff that’s being said about you, that you don’t even know is happening.

 

Rod Khleif:               Sure.

 

Beau Beery:              That stuff spreads in this world…

 

Rod Khleif:               Got it.

 

Beau Beery:              In multi-family field so quick, I know a number of people who are just frustrated. They can’t do deals but I know what their reputation is in the market because of things they’ve done in the last few years.

 

Rod Khleif:               Yeah. There you go. There you go.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Okay. Common sense stuff, guys.

 

Beau Beery:              Number three, obviously, never sit on a deal that a broker brings you. We talked about that.

 

Rod Khleif:               Right.

 

Beau Beery:              Yeah, I talked about how it’s okay to pass it, so I’ll sort of move past that one.

 

Number four, don’t give a broker impossible purchase criteria.

 

Rod Khleif:               Give me an example.

 

Beau Beery:              I get calls all the time from folks who are saying, “Hey, I’m looking for a stabilized C asset in an A location, 9% cap rate.

 

Rod Khleif:               [chuckles]

 

Beau Beery:              It’s like, get out of my… That is just ridiculous. It doesn’t exist. Not only it… That’s not even considered a unicorn. That’s like a double unicorn with like a horse butt and doglegs. It just doesn’t even make any sense.

 

Rod Khleif:               No, definitely not on market. That’s for sure. I don’t even think they can find something like that off market. But no, we’re in a hot market right now, so be realistic.

 

Beau Beery:              Right.

 

Rod Khleif:               I get it. I get it. Unless you’ve got an off-market campaign looking for… We do mailers. We’re doing very, very well, and we teach it in my course, how to find off-market deals. But if you’re dealing with brokers, don’t expect a nine cap, like he just described. It’s not gonna happen. Not today.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Maybe when the contraction happens but not today.

 

Beau Beery:              That’s right.

 

Rod Khleif:               Yeah.

 

Beau Beery:              Alright, fifth and final thing you should never do with a broker, this goes back to, you’re never going around and so forth. But I wanna make sure, this is not a broker’s greed… I’m trying to teach how you get more deals. This is part of it.

 

Rod Khleif:               Right.

 

Beau Beery:              The fifth thing is don’t ever ask the broker to reduce his already contractually obligated commission, in order to solve an issue that came up in the transaction to close. That has nothing to do with the situation. Let me give you examples.

 

Rod Khleif:               Okay.

 

Beau Beery:              You’re involved in a deal, and let’s say that the seller gave you a document that you relied upon that ended up not actually being totally true. The seller thought it was true. It’s not true. The attorneys reviewed it. It’s gonna cost the buyer some money… Why come to the to the broker and say, “Come off your fee, the equivalent of 30%.” What does that have to do with me? I just brought you the deal I brought the two of you together. We’re the ones making this happen.

 

I’m certainly willing to budge. I’m certainly willing to throw into the deal but the proportion that brokers sort of get asked to…

 

Rod Khleif:               Yeah, no, it’s out of whack. It happens a lot in residential as well.

 

Beau Beery:              True.

 

Rod Khleif:               The bottom line is, guys, if you want more deals from the broker, you got to think about these things. I mean, I have to be honest, I’ve had broken make concessions before. I did it on my personal residence, but in the multi-family space, if you want deals from a broker, you have to take very good care of that broker.

 

This just goes as commonsensical, this just goes with the territory and if it’s not the broker’s fault for whatever is happening… You know, there you go…

 

Beau Beery:              Yeah. The key word there, Rod, is proportionate.

 

Rod Khleif:               Okay.

 

Beau Beery:              All of us are deal-makers.

 

Rod Khleif:               Right.

 

Beau Beery:              I’ve certainly budged on commissions. All the time, I’m happy to do so because if both parties are sort of taking a hit. It’s when you’ve got to $10 million deal and there’s a $100,000 discrepancy, so a 1% discrepancy and you come back to the broker and are asking him to take a 30% hit. That doesn’t make any sense.

 

Rod Khleif:               Yeah. No, I get it. I get it. Now that makes complete sense… Alright, let’s move in to, what to ask for before you start your due diligence? Or really, during due diligence.

 

Beau Beery:              Okay.

 

Rod Khleif:               Go ahead and speak to that, please.

 

Beau Beery:              Sure. Some of the things I that I asked for, that I always want for the buyers to ask for, obviously, income statements or tax returns would be sort of like the gold seal if you will.

 

Rod Khleif:               Sure.

 

Beau Beery:              I like them for the previous two years and year to date. So like right now would be 2015, 2016, year to date 2017.

 

Rod Khleif:               Yup.

 

Beau Beery:              Now, obviously, when you’re looking at tax returns, there’s a lot of fluff sometimes that are put in tax returns in order to reduce taxes. So you ought to kinda peel through some of those things and remove them. But tax returns are usually far more accurate.

 

Some of the 75 plus units investors, they’re using really good property management software so their income statements are pretty reliable. It’s once you get under 50 units that you get the Excel spreadsheet sort of general…

 

Rod Khleif:               If you get that. Right. If you get that.

 

Beau Beery:              Right.

 

Rod Khleif:               No, I get it.

 

Beau Beery:              Those are the top ones. That’s when you really want tax returns.

 

Rod Khleif:               Okay. Now, you’re not always gonna get them but at least if you get tax returns, you can assume that the income portion is accurate. You can tie in expenses. It’s better than just that seller telling you what the expenses are, and you hoping that you’re accurately projecting what they should be.

 

Beau Beery:              Right.

 

Rod Khleif:               What else?

 

Beau Beery:              Obviously, a rent-roll to me is probably one of the most important things because often times… I’ve done tons of deals, just in the last couple of years in which all we have was a rent-roll.

 

Rod Khleif:               Right.

 

Beau Beery:              With today’s technology, and data, and information that’s available to you, if you had no expenses whatsoever for the property, you can even sometimes have pretty good accurate estimates. The National Apartment Association puts out a report that I read cover to cover, every single year, on operating expenses. That’s across like 4,000 properties. It’s broken up by different sections of the US, by age, by size, by everything.

 

Pretty close you can come up with it, all the way down to administrative expenses to property management, to all that stuff, and create your own pro forma on the expenses. If you have the rent-roll, that’s big time. Because there that has the unit mixes. It has what kind of deposits are there. Sometimes, if you got too little deposits you better have really good rental criteria, or be very cautious. Or if you have too large deposits per person, that could mean there’s a lot of bad credit tenants in there.

 

Rod Khleif:               Right.

 

Beau Beery:             So you wanna get in some replacement. Start and end dates are pretty important on the on the rent-roll. You’re looking for the better to have scattered end dates.

 

Rod Khleif:               Right. You don’t want a bunch of leases expiring in the same month that can be…

 

Beau Beery:              Yeah.

 

Rod Khleif:               Something to be concerned about.

 

Beau Beery:              Bank statements to me are big.

 

Rod Khleif:               Back to rent-roll for just a second, buddy.

 

Beau Beery:              Yeah.

 

Rod Khleif:               I apologize.

 

Beau Beery:              Sure.

 

Rod Khleif:               In fact, maybe you’re gonna talk about it now. But yes, the rent-rolls are very, very important. And by the way, that report from the National…

 

Beau Beery:              Apartment Association.

 

Rod Khleif:               Apartment Association. Sorry, brain fart there for a minute.

 

Beau Beery:              [chuckles]

 

Rod Khleif:               That report, we just gave that to our coaching clients. It is killer and highly recommended to use that to come up with those percentages.

 

Beau Beery:              Right.

 

Rod Khleif:               I mean to utilize those when you’re when you’re if you don’t have the expenses you can use those averages to come very, very close to what they should be. Correct?

 

Beau Beery:              That’s correct. Correct

 

Rod Khleif:               Alright. Back to rent-roll from one second, the one thing that’s critical to remember about rent-roll with all the importance of utilizing it and having it, is that you make sure that you’re looking at economic occupancy. Because just because they’re on that rent-roll doesn’t mean they’re paying.

 

Beau Beery:              That’s right.

 

Rod Khleif:               So speak to that. Maybe that’s what you were gonna talk about with the bank statement.

 

Beau Beery:              Yeah. Bank statements clear that. Right?

 

Rod Khleif:               Right.

 

Beau Beery:              Because a rent-roll is an owner generated statement.

 

Rod Khleif:               Right.

 

Beau Beery:              Even though a lot of the big guys would never ever fluff stuff like that, the bank statement… Listen, if you’ve $20 million for an asset, you’re probably gonna ask for bank statements to verify stuff ‘cause you’d…

 

Rod Khleif:               Yeah, but like with the 30 unit owner, or 20 unit owner, they may be just giving you an old one. And two or three of those people have moved out, or two or three of them aren’t paying, or whatever.

 

Beau Beery:              Right.

 

Rod Khleif:               It may not even be nefarious it just may be incompetence.

 

Beau Beery:              Right.

 

Rod Khleif:               Anyway, please continue.

 

Beau Beery:              Bank statements will sort of solve that.

 

Rod Khleif:               Right.

 

Beau Beery:              In flows, and the out flows of the property, and you wanna match them up with the income statements and the rentals.

 

Rod Khleif:               Right.

 

Beau Beery:              And that’ll cure… If there’s delinquencies they’re not telling you about…

 

Rod Khleif:               Right. It’s critical to match those up, guys. It is the point. You’ve got to get bank statements so you got to make sure that money is actually coming in, not just on the rent-roll.

 

Beau Beery:              If you can’t get bank statements, my next thing to ask for is a list of delinquencies. They should be able to come up with what each tenant owes.

 

Rod Khleif:               Correct.

 

Beau Beery:              And you wanna look at that. Obviously, you know what you’re looking for there. I like to collect the last three months of the utility bills that the actual owner pays. You know, for the clubhouse, for the vacants, for the exteriors. I like to match that up with the income statements, to make sure that’s good. And just in general, to make sure I understand exactly what I’m responsible for.

 

Rod Khleif:               Sure.

 

Beau Beery:              Those are usually pretty big percentage. Obviously, you wanna ask for all vendor contracts; the lawn guy, the pest control, the laundry. What you’re looking for there is sort of the nitty-gritty in the contract, and can you get out of things in order the cost.

 

I just had a big, big deal I was working on, where we thought that the cable agreement was cancellable with 30 days notice. It ended up being it really wasn’t, and this was like a 10-$12,000 a month cost, property-wide. So it’s a real sort of kicker in the due diligence period, because we had a kind of negotiate that part of it.

 

It’s not just enough to say, “Yeah, cable is cancellable.” Or the lawn guy, give them 60 days notice. Whatever it is, read the fine details because those are… Listen, just a $1,000 a month for landscaping.

 

Rod Khleif:               Sure.

 

Beau Beery:              Well, that’s 12,000 a year, you divide it by a seven or eight cap, tell me what that’s worth and that’s a huge deal.

 

Rod Khleif:               That’s a lot of money.

 

Beau Beery:              Right.

 

Rod Khleif:               That’s a lot of money. Yeah… So laundry, all of those things. You got to read those contracts, or have an attorney read them.

 

Beau Beery:              Yeah. The next thing is the most recent property tax bill. Now, you may say Beau, you can get that off the internet, you can get that off the property appraiser. It’s very rare, but I’ve seen instances in which the property appraiser wasn’t an updated, or just had an error, just like a total blanket error. Or sometimes, folks sometimes rely on, in some municipalities; they’ll have a partial number for the intangible tax, and sometimes for the partial one…

 

Rod Khleif:               Wow. If you look at the intangible you’re in deep doo-doo, oh… That’s very… I haven’t heard that before, I really appreciate that one. That’s good.

 

Beau Beery:              Yeah.

 

Rod Khleif:               So get the bill.

 

Beau Beery:              Get the bill.

 

Rod Khleif:               Okay.

 

Beau Beery:              If they have a prior title policy, or survey…

 

Rod Khleif:               Sure.

 

Beau Beery:              Sometimes, those are helpful, just preliminary to look at. If not, they provide savings when you’re going to…

 

Rod Khleif:               Sure, definitely the survey. Yeah, you definitely wanna get those if you can, Good.

 

Beau Beery:              Yep. Copies of all the leases and any amendments, and sometimes that doesn’t mean… For instance, if you’re getting 50, 75 units or more, often times you’re just going into the clubhouse, and you’re spending a couple days there.

 

Rod Khleif:               You’re on conference room table and you’re going through leases. By the way guys, if you’re in the 50 plus unit range, that’s one of the things that many property managers will help you with. They will go in and do your…

 

Beau Beery:              Bring them with you.

 

Rod Khleif:               In office due diligence. Yeah, bring them with you. Let them help you with that. You guys know I’m a huge proponent for self-management, but that’s said, case is light on these larger properties and if you do or if you’re just getting started, your first one or two assets, I highly recommend using a property management company until you’re up to speed and fully understand the business.

 

Beau Beery:              Yeah.

 

Rod Khleif:               They can be a huge asset when you’re going through due diligence in a larger property.

 

Beau Beery:              Those leases are, those are more sort of hidden nightmares. You need to read all of them, and don’t get complacent. Once you look at 10 leases and you think, “Oh yeah, the next 10 are gonna be the same… Meh, I’m good there.” I mean, you need to read them all to make sure because sometimes, property managers, especially under a hundred units, sometimes, they’re given liberty by the owners to do as they please to get a lease.

 

They may have striking out some of the main, main language for some tenants. There might be reduced deposits. There could be little sweetheart deals…

 

Rod Khleif:               Free rent after a year, for a month. Yeah, we’ve seen it all, so absolutely.

 

Beau Beery:              Yeah.

 

Rod Khleif:               You read every single lease, if you’re doing it yourself.

 

Beau Beery:              Absolutely.

 

Rod Khleif:               For sure. Okay.

 

Beau Beery:              Alright. Last few things, a list of capital expenditures done over the last five years. Now, some things may be obvious to you when you’re doing your physical walk through.

 

Rod Khleif:               Sure.

 

Beau Beery:              There may be some other stuff you just didn’t know happen. Try to get the contracts or the deals, or the invoices that were signed for those. Just so you know, if nothing else, to be able to schedule in your CRMs.

 

Like my CRM, I can schedule anything I want in there, so I actually have properties in my CRM and I can schedule, “Okay, three years from now, I need to have the septic done.” Or “Five years from now I need to have this done”, whatever it is. That stems from getting those CapEx expenditures from the seller.

 

Rod Khleif:               Right. Right. If you’re getting bank financing, they’re typically gonna want you to escrow something for future CapEx expenses anyway.

 

Beau Beery:              That’s right.

 

Rod Khleif:               By the way, what is that amount typically, in your experience?

 

Beau Beery:              On the… ?

 

Rod Khleif:               On CapEx on a…

 

Beau Beery:              Like a pro forma?

 

Rod Khleif:               Yeah.

 

Beau Beery:              The industry average, on what people are actually spending per year when you look at National Apartment Association, is between 8-$900 a unit. However, banks and buyers are typically using anywhere from 250 to $500 a unit when they’re putting a pro forma depending on what’s been done.

 

Rod Khleif:               Okay. Okay. Yeah, I thought it was under 500.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Okay.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Alright. I think the last thing was leases or what was the last thing you said?

 

Beau Beery:              I got these last two are environmental reports and…

 

Rod Khleif:               Of course.

 

Beau Beery:              There’s nothing really to expand upon there.

 

Rod Khleif:               No, no. Let me add one thing there.

 

Beau Beery:              Yes.

 

Rod Khleif:               That is guys, you get what’s called a phase one environmental report. Now, if you’re out there doing off market deals, and you get a seller financed deal, still get the environmental report. Because, I will tell you the way it works.

 

They’re checking for toxicity in the soil and the way the EPA works is if you own the property, it doesn’t matter when the oil tank was put in, who caused the damage does not matter. You as the owner are responsible; whoever owns it at that moment. So if you do a seller financed deal, normally, you wouldn’t get any third-party reports. You wouldn’t probably get an appraisal or anything like that. You always get a phase one. Okay?

 

This is Rod’s opinion but I’d rather spend 1000, 1500 bucks for that right now, then have a $500,000 clean up because you didn’t.

 

Beau Beery:              That’s right.

 

Rod Khleif:               Okay.

 

Beau Beery:              Yeah, just a quick 20-second war story.

 

Rod Khleif:               Okay.

 

Beau Beery:              Back in the day, I bought a deal that I knew had environmental issues ‘cause they had one of those vacuum systems on it. I went into the county of where that property was, talked to the EPA guys. They told me all about it. It’s all covered under the program… yada, yada, yada. They never told me about a second leak in there. Stupid me, I never got a phase one. It was very early on because I already knew it’s contaminated. It was already covered by the state, and I was sitting in front of actual government officials, and they never mention that other thing. And guess who gets it? Even though they know it was caused by somebody else. Doesn’t matter.

 

Rod Khleif:               Doesn’t matter.

 

Beau Beery:              Don’t matter.

 

Rod Khleif:               Even if they know who did it. One other caveat, since you said that, ‘cause that reminds me of something. Anytime guys, that you are dealing with a government official of any kind, an inspector, EPA anything like that, you always, always, always reduce the conversation to writing. You send an email and say, “Here’s what we discussed and agreed upon.”

 

You never ever, ever, ever leave it verbal. They talk to a lot of people. Sometimes, they have an agenda. You just make sure you always reduce it to writing. Building inspectors, if you’ve got code violations or anything like that, you always reduce it to writing. “Please, write that one down.” It’s very, very important when you’re dealing with any governmental official.

 

Beau Beery:              Rod, you just gave a $300,000 tip. That’s the average clean up.

 

Rod Khleif:               Yeah. Well there you go.

 

Beau Beery:              [chuckles]

 

Rod Khleif:               Alright. No, I mean, this really applies to anything. If you’ve got some zoning issue, if you’ve got some environmental issue, if you’ve got a building department issue, anything, you make sure you reduce it to writing. I can’t tell you how often that saved me.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Okay.

 

Beau Beery:              Last one, Rod. I always ask for a trial balanced ledger. Which is a report, and sometimes it’s called differently in different programs but this would be a report that shows all of the individual repairs per unit.

 

Now, you don’t need to look through every single repair of every single unit but you can find common themes that are happening in the property. Because when you get an income statement, they will have a category called repairs and maintenance.

 

Rod Khleif:               Right.

 

Beau Beery:              You know, and it’s equivalent to five…

 

Rod Khleif:               It’s a catchall. It’s a catchall. It’s got everything.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Right.

 

Beau Beery:              It’s got everything in there.

 

Rod Khleif:               Right.

 

Beau Beery:              And you can ask the property manager, “Hey, what are your common expenses that you see or the common calls that you get?” You’ll get one answer but that trial balance ledger or whatever the equivalent is, in that property financial software that will tell you like boom!

 

Rod Khleif:               Yeah. If you see them replacing a particular item regularly, you can anticipate it’s gonna get replaced in every single unit.

 

Beau Beery:              Yep.

 

Rod Khleif:               That’s what you’re referring to. Correct?

 

Beau Beery:              That’s correct.

 

Rod Khleif:               Or a repair of some sort that happens over and over again.

 

Beau Beery:              Yeah.

 

Rod Khleif:               That’s good. That’s very important. Let me ask you a question.

 

Beau Beery:              Sure.

 

Rod Khleif:               I tell my coaching clients to always try to find out past contractors that worked on the property, and actually have conversations with him. Find out what they’ve encountered. Find out what things could pop up in the future that they’ve seen in the past. Maybe they’ve scope the sewer lines, and they know that something… there are roots coming in, at some point it’s gonna be a problem. Do you recommend that as well?

 

Beau Beery:              Yeah, absolutely. That’s easy to do.

 

Rod Khleif:               Right.

 

Beau Beery:              Nobody would stop you from doing it when you’re in due diligence and you’ve received sort of the… Like the trial balance ledger would tell you who they paid…

 

Rod Khleif:               Right.

 

Beau Beery:              And what they did. You can call those guys up…That’s super forensic.

 

Rod Khleif:               Right.

 

Beau Beery:              But listen, if you’re putting millions of dollars into a deal, why not do it?

 

Rod Khleif:               Thank you. Yeah. What you can’t see, you can’t see.

 

Beau Beery:              Yeah.

 

Rod Khleif:               If you don’t know something’s there… That’s why it’s a great idea to look at the capital expenditures maybe they done some foundation work that you can’t see. We’ve had that happen before. Maybe there’s a drainage issue that they haven’t solved, they’ve patched it, and you don’t see it because it’s not completely obvious. But those things can be very, very expensive.

 

Okay. Good stuff. So what’s next? What sort of a buying team do you recommend having? And why?

 

Beau Beery:              Yeah, even before going into contract, if you have the relationships, and the right folks who can show up quickly, I always suggest when you’re walking the property, bring a property manager. Immediately you’d be shocked at all the things they can tell you about the physicality of building, the immediate area, the market in general, that could be totally contradictory to what you’re seeing an offering memorandum, or what you think yourself.

 

Rod Khleif:               That is very, very good advice. Guys, if you don’t have 3- 400 units you should always bring a property manager with you to get their market knowledge to get their experience.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Now let me ask you a question, back on that note. Any advice you have for finding the best property managers for a particular property?

 

Beau Beery:              Yeah. When I’m over 100 units I don’t wanna mess around.

 

Rod Khleif:               Right.

 

Beau Beery:              It’s just not worth it and so I’m going for big dogs. I’m going for people who have a lot of units under their management. Now, there could be some uneducated thoughts out there that, “Oh, if they’ve got a ton of properties, they’re not gonna be thinking about mine… Blah, blah, blah.” That’s just not how it works. If they don’t have a bunch of properties there’s probably a reason why they don’t have a bunch of properties.

 

I want people who got lots of properties, for two reasons, number one, people think they’re good. And number two, especially when there’s a lot of like kind stuff, they’re able to pool, from tremendous amounts of marketing. So if they’ve got six or eight conventional assets in a market, that would be between 100 and 300 units, and you’re buying one of those, like there’s some good stuff there. You can really get some great cross marketing, if you will.

 

Rod Khleif:               Sure.

 

Beau Beery:              Once you get under 50-75 units, it’s really kind of a toss up. Like you always wanna have the best manager in the market, but sometimes, depending on the type of asset, you don’t wanna go with one of the big regionals, or nationals, who’s not gonna give ______ [bad audio]

 

Rod Khleif:               No. I agree. No, I agree.

 

Beau Beery:              [bad audio] A lot of those local guys who have sort10, 20, 30 unit communities, those guys can knock it out in a ballpark for you. I certainly would at least mix them into the conversation.

 

Rod Khleif:               Absolutely. Now, are there any screening sorts of thoughts that you might have about what to look for beyond their size requirements, or do you just go off recommendations? What do you recommend to clients?

 

Beau Beery:              I’d like know who they’re managing for, and the likelihood is, I know some of those folks, or if not, you’re just calling him up, and you’re asking, “Hey, do you mind if I give such and such a call? You manage for them. I know those guys, can I ask them about you and so forth?” No one’s gonna tell you, no. If they’re telling you, no, that’s red flag number one.

 

Rod Khleif:               That’s… Yeah. No question. Right. Good. Good.

 

Beau Beery:              You can find out more from those customers, than any kind of other research you could do.

 

Rod Khleif:               I like it. Alright, I like it. Other team members?

 

Beau Beery:              Other team members. If you don’t have one already you need to be best friends, or have a phenomenal maintenance crew whether it’s one guy, two guys, whatever it is. They’re taking care of some of your properties. Bring them along with you. They’re super, super knowledgeable.

 

When I walk properties with folks, I think I know what I’m doing but they’re always… Like they’ll go and point something out, or touch something, or bring something down, and then I’m just like, “I never really thought about that.” But these guys, they’re the ones who have taken all these calls, and doing all the work orders. They know what to look for. It’s just super important to bring them with you.

 

Rod Khleif:               Absolutely. Or at the very least to GC, bring somebody you know, bring a GC if you don’t have a maintenance guy.

 

Beau Beery:              That was the next guy I was gonna say.

 

Rod Khleif:               Oh, next on the list. Okay.

 

Beau Beery:              Yeah.

 

Rod Khleif:               If you don’t have a full time maintenance guy yet, then bring a general contractor. But ultimately, you don’t… You can’t afford… You wouldn’t wanna pay a GC to do maintenance but they can at least flag things that you may not see.

 

Beau Beery:              Yeah.

 

Rod Khleif:               Potential upcoming maintenance related issues; things that they’ll see that you’ll gloss over it, unless you’ve been doing this a very long time.

 

Beau Beery:              Yeah. I tend to use the maintenance guys for some of the very, sort of decentralized repair type stuff. I bring the contractor along with roof structure, slab, parking lots, like major stuff like that. They know what to look for there.

 

Rod Khleif:               Sure. Good.

 

Beau Beery:              And the other guy that I always try to bring, like in my second or third sort of tour of you will, like when I know I want the asset is my banker. I want him to see the asset, smell it, touch it, like I want him to know it like I know it, and get him involved in the deal.

 

Rod Khleif:               That’s very good advice. Very good advice. That’s a good one. Now, let me ask you this, let’s talk about financing for a second. I’m sure your doing a lot of Fannie and Freddie type stuff but when you say banker, are you talking about your mortgage broker? Are you talking about regional banks, if they’re dealing with conventional… They’re dealing with the regional or small bank?

 

Beau Beery:              Again, depends on the asset. Right?

 

Rod Khleif:               Right.

 

Beau Beery:              If it’s a localized asset that, for instance, I would say probably under 60-70 units, I like at least considering other local lenders. They can give some pretty good terms.

 

Rod Khleif:               Right.

 

Beau Beery:              Once you get into the bigger arena, that is tough for the local bankers to sort of understand it, and so you’re talking to big boys. I still want one of the big boys. I don’t care if he’s a state over, or a couple of states over. I’d like him to come down, and kind of walk this thing with me and take a look at it.

 

These guys aren’t just bankers. They’ve underwritten tens of millions, and sometimes billions of dollars. They see things sometimes that you don’t. _______ [bad audio]

 

Rod Khleif:               Sure. Sure. They’ve forgotten things that we won’t even…

 

Beau Beery:              Yeah.

 

Rod Khleif:               We won’t know for a long time. No, I get it.

 

Beau Beery:              They’ve taken back lots of properties and know why they’ve taken them back, sometimes, quite frankly, because of the physicality. They can see things from other war stories.

 

Rod Khleif:               Yeah. Okay. Okay… Well listen, we are unfortunately running out of time.

 

Beau Beery:              All good.

 

Rod Khleif:               I was hoping we could through what to look for in the financials. But maybe we can do that on another episode.

 

Beau Beery:              Sure.

 

Rod Khleif:               Guys, I really like Beau, and I hope you guys, if you’re interested in buying any property in the northern half of Florida, or the whole state… Do you handle the whole state or primarily North?

 

Beau Beery:              Central and North Florida.

 

Rod Khleif:               Central and North. So if you have any interest there, definitely check him out. He’s a good guy.

 

Thanks for being on the show, my friend. You added a ton of value.

 

Beau Beery:              Yeah, man, I appreciate the opportunity.

 

Rod Khleif:               Absolutely. Alright, take care.

 

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Thank you for listening to the Lifetime CashFlow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

 

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