The Beyond Multifamily series is hosted by non-residential commercial real estate investor and Best Ever Show host, Ash Patel. Ash’s goal for this series is to introduce you to the world of non-residential commercial real estate investing and teach you how to look at and underwrite different commercial asset classes.
In this episode, Ash uses some of his personal stories to illustrate how pain points and emotions are a part of real estate transactions, and how you can use them to your advantage.
1. Pain Point #1: Having to Pay for a Storage Unit
While Ash’s first story is about gym equipment, not real estate, it still demonstrates how addressing a pain point can get a deal done. When he sought to buy some gym equipment from an ex-gym owner selling the gear out of a storage unit, he offered to buy out all the equipment. He also offered to put the storage unit in his name so the seller would no longer have to worry about paying for it as Ash took his time emptying the unit.
2. Pain Point #2: High-Interest Loan
Ash is currently working on a strip center deal where the current owner had $400K in annualized interest rate loans. He saw that the seller was struggling to get his head above water, so Ash included in his offer an agreement to immediately pay off the loan with out-of-pocket funds before going in and refinancing.
3. Pain Point #3: Needing to Sell Quickly
A residential realtor Ash knew reached out to him about a lakehouse the owners were desperate to sell. They couldn’t afford to keep the lights on or the propane tank filled, and in the middle of winter, frozen pipes were a threat to the property. They needed to sell fast. Ash made an offer at about half the initial asking price, but also agreed to immediately wire $20K to the current owners so they would have enough money to live on and fill the propane tanks in the month or so it would take to close.
4. Pain Point #4: Racing a Deadline
Ash once purchased a vacant strip mall that someone had defaulted on. It was in receivership, and according to Ohio law, receivers can only hold a property for two years before selling. The clock was ticking for this seller, so Ash submitted a lowball offer just before the deadline, and it was accepted.
5. Pain Point #5: Potentially Losing Belongings
A three-hole golf course was about to go to a sheriff’s auction in Cincinnati. The owner was unable to stop the auction from happening, and he had belongings in two buildings that he was desperately trying to salvage before they were forcibly removed. Ash offered to purchase the property before it went to auction and allow the seller as much time as he needed to move his belongings out. He also offered to assist with the moving process and pay for a storage unit. He was able to sign a contract to stop the auction and get the deal done.
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I'm Ash Patel and this is an episode of Beyond Multifamily, where we dive into topics other than multifamily investments. Today we're going to dive into pain points and emotions, and how they are a part of real estate transactions, and how you can use that to your advantage. I'm going to share a lot of stories where I used either pain points or emotions to get deals done.
The first story I'm going to share is not about real estate, but it illustrates how addressing a pain point can get a deal done. We had just renovated a house that we moved into back in 2008, and we were looking for some gym equipment to fill some space. So I got on Craigslist and I looked for some gym equipment that I needed. I found a listing, called him up; it turns out it was the gym that I used to work out at. He had closed and was selling all of his equipment. Well, he sold most of it, and when I asked him if I can come take a look at what he had left, he said, "Sure. Meet me at this storage unit." So I went to the storage unit, and I didn't want all of it, but I wanted most of it. And I knew it was going to be a pain to get him to move some of the equipment to get what I needed. And I know he didn't want to piecemeal this sale where he'd constantly be showing people the storage unit... So I knew his pain point was he didn't want to pay for the storage unit any longer than he had to, and he wanted this equipment all gone as soon as possible. I offered him one price to buy all of the equipment. I didn't know when I was going to be able to get movers to move this stuff out, so I told him before we left, I would walk up to the office and turn the contract into my name, so he's no longer responsible for anything. He walks away, mission accomplished; granted a lot less money than he wanted, but all the headache has lifted off of him. So one example of how addressing a pain point got a deal done.
Another deal that we're currently working on now is taking over an old indoor tennis facility and converting it into a world-class pickleball facility. So you guys have all seen those giant metal buildings, tennis clubs that were hot in the '80s and '90s, now are showing some age to them, they've got deferred maintenance, not as many people are playing tennis, and pickleball is the fastest-growing sport in the US. A pickleball court is roughly a quarter the size of a tennis court, so you can fit four pickleball courts in one tennis court.
This one facility near Cincinnati is up for sale. Turns out it's an estate sale. The father who ran the tennis club for years passed away. The facility is now closed and the kids are putting the facility up for sale. Now, we're way off on price, so I used some emotions to leverage reduction in price. And what I said was to the family, "Hey, we'd love to honor your family and name the building after him."
So I gave them the task of coming up with the name. I gave him a few suggestions, "First-name Last-name Memorial Building," or whatever they want to come up with. "So and so sports complex," or "Building is dedicated to the legacy of so and so." Whatever it may be, it got the family talking. And I don't know if that deal is going to get done at the price that we need it to get done, but we're at the head of the list for buyers that they want to sell the building to.
Timing is often a huge leverage in getting deals done. There was a strip mall that a residential realtor who I had been mentoring to learn commercial real estate got thrown at her. She brought it to me and said, "Hey, father passed away. The son who inherited the strip mall is looking to sell it and move down to Florida." In a roundabout way, we found out that the son who inherited the building was the runt of the family. And as soon as his older brother found out that he had inherited the building and took title to it, he was going to take it away from him. So we had to close very, very quickly before the older brother found out, and we were able to get that done. Timing was very critical in that deal.
Another deal that we're currently working on is a strip center where the current owner had a really bad property manager that was embezzling money from him, and he's got a bunch of loans out there. And he's got about $400,000 in 25% annualized interest rate loans; basically a loan shark loan, that's costing him a lot of money. So we knew the pain point was he's not able to get above water with that super-high-interest loan. So part of our offer to him is we'll immediately pay off that loan with funds out of pocket, and then we'll go in and refinance. Other people that are looking at this deal are looking at it from a linear approach where, "Okay, this is what it's worth. This is what will offer." They're not solving any problems, and they're not identifying what pain points the seller has to solve.
Another incredible deal was a giant, almost two city blocks development, old development, new development, in a college town that was also an estate sale. The father passed away, and there was probably a total of 50 different tenants in this two-block multi-story complex, anchored by a BW-3, there was a hotel there, several boutique stores, a number of restaurants... Again, college town... And the trustees of the estate had put this property up for auction. They were only going to allow a small number of bidders, and the bidders had to be qualified.
So before we put our bids in, we did a ton of research on the individual who built or renovated most of this property, and also was the one that owned it when he -- when he passed away, he was the owner, and the trustees were selling it on his behalf. So that owner is who I researched. I found out he was a very generous individual, did a lot with endowments to the university, and giving back to that university was near and dear to his heart. Although the trustees were the ones that were going to facilitate the sale, his wife was ultimately the person who was going to make the decision, and it wasn't necessarily going to go to the highest bidder.
So I took all of that information that I had and I went to the university, any professor of marketing, entrepreneurial studies, business, accounting, finance, management, I wrote all of them letters. I got onto the university's website and found those professors, and they had a link to their email addresses. So each one of them, I wrote them a personalized letter, saying, "Hey, we're in the running to buy this property," which is essentially the town square, where everything happens for both college kids and local townspeople... And I said, "We would love to partner with the university, and your finance department can help manage our books. Your accounting department can do our P&Ls. Your marketing department can help our local businesses market themselves. Your management group can work alongside of us so they can learn how to properly manage retail, hotel, apartments, all of the above, in one facility."
And when we put our bid in, I explained to them that I reached out to all of these professors and we wanted to work close with them to manage the facility, run it, and essentially just partner with the University. When the trustees and the wife found out about this, we were essentially the only bidders they allowed to bid on the property, and we were the winning bid.
Break: [00:10:13] - [00:12:00]
Ash Patel: There is a lake near Cincinnati called Lake Waynoka, and we've got a home out there. A residential realtor from that area knew that I had a house there, and that I'm also a real estate investor. So she calls me up in the middle of winter - this was December, when the lake's frozen. This is a summertime-only lake; not really a big destination, there's no renters there. So selling a house there in the middle of winter is often an insurmountable task.
She called me and said, "Hey, the sellers are desperate." Again, an estate sale, dad passed away. It's two sisters, they really need to sell the house, and they can't even afford to keep the lights on or to fill the propane tank with gas to heat the house. So I went, took a look at it. I think initially, the house started at $950,000, they reduced it. When it was presented to me, it was $650,000, $550,000, or something. Still pretty high.
And I ended up making an offer and got it for $420,000. But one of the things that I did was, along with my offer, if they accepted the contract, I would immediately wire $20,000 to them because, again, the house was free and clear, paid off, they were going to have a big payday at closing, but their pain point was the month or so it would take to close on it.
So the $20,000 was theirs; I would immediately fill the propane tank, because I didn't want to leave that to them. Have they not filled the propane tank, the pipes would have froze, and it would have been my problem. So I'll give you the money that'll stop the bleeding, and I'll stabilize the house, and I got the deal done at a pretty low price.
There was a vacant strip mall that I was purchasing a number of years ago, and it was I think December 10th when I put a really lowball offer in. This property was vacant and it was in receivership, which meant it was up for sale. Somebody defaulted on it, and the judge appointed a receiver to take it over, manage it and subsequently sell it. Well, apparently there's a law in Ohio where receivers can only hold a property for I think two years before they had to sell it. I found out that that two-year mark was coming up December 31st, so I put this ridiculously low offer in, and they came back and said, "Fine, you can do it. We'll take the offer. You have to close on December 31st or sooner, or we're keeping your $100,000 earnest check."
In this case, I knew their pain point. They would get dinged, they would get fined if they own the property on January 1st, so that allowed me to put the lowball offer in. I was able to call my bank and title company and make sure they were able to get the loan done before New Year's Day. And they did, we got the loan done. But again, finding out that pain point is what made me confident that that lowball offer would get the deal done.
Another deal that had a few twists and turns was there was a three-hole golf course in Cincinnati that was about to go to a sheriff's auction. And a three-hole golf course may not sound like a bad idea, but in Cincinnati there's tons of great municipal courses that are very inexpensive to play at. So in this case, the seller put a lot of money into developing this golf course. Again, it was only three or four acres, but the seller, when we approached him, said, "Hey, look, I can stop the auction. Just take over my loan, pay the back bills that are due, and I'll stop it if you allow me to keep these two buildings and one acre out of the parcel."
So as we dove into the details, we found out that this was going to auction. He really had no way to stop it, and his pain point, really, was he had a ton of belongings in these two buildings. If this went to auction, he would have to get them out immediately, or the sheriff's office would remove them. So we told him if we were able to buy this before it goes to auction, we will give him as much time as he needs, we'll help him move stuff out, we'll pay for a storage unit, we'll just make his life easy.
So he was able to give us all the details about his lender, the loan details, and we contacted the lender. The day before this was supposed to go to auction, we were able to sign a contract with them, stop the auction and get the deal done. Again, the pain point here was the seller's or the previous owner's belongings that were near and dear to him and he wanted to secure them.
Another deal that we're currently working on is in one of the suburbs of Atlanta, where we toured a strip mall that's almost finished, and we spoke with the developer. It turns out, in probing him, he's not getting along with his partner, so he wants to sell the strip mall, and little by little, get his partner out of the deal. Well, the land that he's building on, they're going to build another strip mall and a flex space property, phase two and three. So we knew that this guy was just miserable having to deal with his partner. They're being passive-aggressive towards each other, they're poking each other. So our solution was, "Hey, can we just buy out your partner?" "No. The way that it works, he's got the first right of refusal." "Fine, can you sell the entire project to us now?" And that's what we're doing. It's under contract. This way, the guy's partner gets paid, he gets paid, the deal's done, and pain point solved.
So Best Ever listeners, the moral of the story here is most real estate transactions involve some emotion or some pain points. When you're evaluating properties, do everything you can to research the broker, the seller. Find out what the story is, why are they selling? If you guys never asked why are they selling, that's a ding. You always have to find out. Find out details about their current loan, financing, debt structure. Get as much detail as you can, and search for those pain points, or those potential emotional plays, both positive and negative.
Another crazy story is we were trying to buy a strip mall, and in conversation, we found out that the seller's wife wanted to buy a condo in Hilton Head and they didn't have enough time to get the financing to go through and they were going to lose the deal. So we offered them a lower price on the strip mall. We also offered to buy the condo with cash and would turn it over to them at the closing of the strip mall. That deal didn't get done, but it's another crazy way of finding a pain point in getting something done.
I'll try to make this the last story and I hope I'm not boring you guys and getting long-winded. But we have 80 acres of land under contract near Cincinnati Airport. The land of the cattle farmers, it's been in his family for generations and we had a six-month contract to close. And we were going to develop industrial sites on there. It's taken way longer than it ever should have. The county has to get involved with building roads, extending sewers, and we had to keep going back to the seller and saying, "Hey, we're sorry we ran into this roadblock. Can we get another three months, another six months."
I think total, we've extended it nine additional months. And the very last time we assured him that deal would get done. So this person quit his job and banked on getting his money for this property and being able to retire. So we found that out and had to ask for yet another extension. So to make things right, to keep the deal going and to get the extension, we offered him $25,000 a month, non-refundable until we close on the deal, and that put him at ease because he's no longer questioning his decision to retire. He's no longer questioning whether we're going to be able to close or not. He's good, he's got plenty of money coming in and he doesn't have to go to work. So again, we found his pain point. You know, this guy should have walked away from this deal several times, but stood with it each time. We just found a pain point, we were open with communication, and we're able to keep the deal alive.
So Best Ever listeners, I really need you to find out everything you can about all parties involved when you're doing a real estate transaction. It's amazing if you can find some pain points, what you can do by solving those pain points. Best Ever listeners, thank you so much for joining us today. I hope you got some value out of this podcast. If you did, please share this with somebody you think and benefit from it. Like, subscribe, leave us a review, and have a Best Ever day.
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