Welcome to the Self-Storage University Podcast, where you will learn the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate self-storage facilities. And your host is a partner in one of the largest real estate portfolios in the U.S. with nearly $1 billion of holdings, Frank Rolfe.
The self storage industry is filled with brokers. There's good brokers, there's average brokers, and then there's really bad brokers. But sometimes there are some good attributes to those bad brokers. This is Frank Rolfe, The Self-Storage University Podcast. We're gonna talk about good things that can come from bad brokers. First off, what would a bad broker be? A bad broker would be a broker that doesn't have a very good mastery of self-storage or what the important items are. Possibly has really bad sales skills, doesn't follow-up. You call and they don't return it, you email and they don't respond. Someone that lies, although it may be unintentional as to what even the asset is, how many units it has, current occupancy, current rent. Generally, someone you really just can't trust their information, and/or you can't even trust their sales ability, their ability to communicate with you, or even simply return your email or your call.
So what good can come of that? Why would you wanna work with a bad broker? How is that gonna benefit you at all? Well, it does have some positive attributes. Now, the first thing is the brokers get listings from bonding with moms and pops. So when a mom and a pop is looking at selling their self-storage facility, what they do is they call, typically, several brokers, at least three, and they say, "I'm thinking of selling, what do you think I can get for this thing?" And the brokers will pretty much feel them out and kind of offer them the moon or whatever it takes to get the listing, but the one they choose between the three, it just becomes a matter of who they like, who do they bond with, who's the friendliest. And the truth is, many of those bad brokers are some of the friendliest. If you really look at the ones who are not very skilled in what they do, they are very chatty, they're very personable, and you can see why some moms and pops who don't know any better, would say, "Oh, I like this broker," even though of all three they could select is the worst one. And because of that simple fact, often bad brokers get really good deals.
Now, you would think it'd be the contrary. The potential seller would say, "Okay, let me look over here, all the other brokers out there, and who's the biggest and who sells the most and who has the best social media reviews," but that's not true. Normally, it comes down to do they like you or do they don't, because many of the mom and pop sellers are somewhat unsophisticated. So right out of the shoot, let's all acknowledge that bad brokers get good deals. And the next item is that those same bad brokers typically have really good communication skills with those sellers, they bonded with them, and as a result, they can typically get deals done that other brokers might not be able to, because what happens is when you go to buy that self-storage facility and you say, "Oh well, you know, gosh, I don't think I can pay more than X," that bad broker will go to mom and pop and say, "Hey, mom and pop, I got an offer of X," and mom and pop will suddenly say, "Okay. Well, who do you trust? Do you think this is a good deal? Should we go with this buyer?" And the bad broker, if they say, "Yeah, I think it's a good offer," then your deal has been cut.
So again, bad brokers still have the ability to make deals happen because they have that pull with mom and pop, they have that inside track. So their bonding is a very, very important force. Also, bad brokers tend to wear out good buyers because most people get fed up. They say, "Gosh, you never return my call, you never respond to my emails. I sent you a contract and you never even respond to the thing." They get mad. They feel insulted, disrespected, so they say, "I'm not gonna call that broker anymore. That guy's mean. He's no good. He would never have done... Never do anything for me." And what happens? They stop talking to the bad brokers. They stop reaching out. They stop saying, "Do you have any new listings?" If they see any new listings, it comes across on the email or somewhere they don't even respond. They say, "Oh, I'm not gonna call that guy. That guy is bad." But therefore, as a result, you have less competition with a bad broker because many buyers get fed up, they quit. But if you don't, if you hang in there and keep calling that bad broker, you've got less people to compete with. So that's another good attribute is with a bad broker, you've got a more selective playing field, you have a lot more opportunity there.
And since the bad broker has fewer buyers because he scared them all the away, they're typically a lot more negotiable when it comes to price and terms. Many of your bad brokers are thinking through their own inability and bad skills that that self-storage facility just isn't hot, not en vogue, not in demand, and they'll communicate that either verbally or through any kinds of mojo or body language to mom and pop, "Oh man, I think we're trouble. We better drop that price a lot to get this out the door." They're also more prone to take your deal and accept it and embrace it a lot harder 'cause they know there's fewer people looking at buying. So once again, them chasing off all the buyers has really helped you a lot. It makes your offer seem a lot more competitive and a lot better 'cause there's not many to choose from.
Now, one problem you have with bad brokers, of course, is that they typically really poor accuracy of the deal details. So that always is an issue. They tell you that their self-storage facility has 400 units, it's only got 330. They tell you that the rent is $100 a month, it turns out it's $85. So they're notorious for having really bad data, but often that's because mom and pop give them bad data, and they're not skilled enough to spot it and say, "Wait a minute, I know that's wrong. I know based on the number of acres and what I saw myself and what I counted, there's no way that's the right number of units. I know that rent is wrong, I saw the banner out front."
So when you use a bad broker, go in with the full knowledge, you're gonna have to do really good due diligence on your own because you can't go by what they tell you 'cause they don't have a clue what they're doing. So that's one of the big drawbacks. But again, you can get over that. You should do great due diligence anyway, whether it's a good broker or a bad broker. You can't trust other people to make your decisions, it's your money, your future. You can't entrust that to some stranger you don't even know, typically one who's trying to sell you something. So that problem that a lot of people say, "Oh, I don't use that broker, lousy broker, lies to me all the time," okay, well, why are you looking at them to do your diligence? You don't need to be. But at the same time, their real secret strength is that they're really good at getting mom and pop to do things, and this is very much in play when it comes to seller financing.
I would say a bad broker has a better shot of getting you a seller note that a good broker would. Why? Because the good broker's very fluid in the market and they know what banks are doing and what banks are making loans and the entire banking process, but the bad broker doesn't. He doesn't really know what he's doing. He has a much limited supply of buyers. Let's be honest, typically his buyer pool is typically more of the amateur than the professional. Professionals already gave up on 'em. Don't even talk to 'em anymore. Even though there's good deals to be had there, they think, "Oh, it's too unprofessional. I don't wanna work with that person anymore." If you're looking for seller financing, you're gonna get that on a more ready basis from the bad broker than the good broker, 'cause the bad broker has bonding to get it done, and he's gonna send the vibe to mom and pop, "You better take this deal with the seller financing, 'cause I don't know if we can get a bank loan." Whereas the good broker would say, "Oh no, mom and pop, don't do seller financing. You can get this from a bank, it's not that hard. I've done a bunch of deals. Here's the last 10 bankers I used, I know all of them would do that loan."
So they can sometimes get you magical terms. You have a much better shot of getting a lower downpayment or seller financing or both plus lower price from the bad broker than you ever do from the good broker 'cause the field is much more competitive with a good broker than it is with the bad. The bottom line to it all is there's nothing wrong with talking to bad brokers. Every self-storage buyer should have a list of all brokers they talk to on a continual basis, probably monthly, but they should not exclude any broker from that list. You'll feel really stupid when the deal that would have been perfect for you and your budget and your financial future is lost simply because you kicked somebody off the list. So leave everybody on there. Be egalitarian. Talk to everyone on a regular basis, both good and bad. You'll be shocked at the quality of some of the deals the bad brokers bring in and equally shocked at the quality that some of the good brokers do. But if you start kicking people off your list, if you start branding a broker as being bad and say, "Oh, I don't work with that person, he's bad," that isn't gonna benefit you. It's not going to help you.
When I look back on some of our best deals, they came from bad brokers, and it probably would be the same for you too. This is Frank Rolfe with The Self-Storage University Podcast. Hope you enjoyed this. Talk to you again soon.