Don’t Fall For The Seller’s Bluff

Bluffing is not just a part of playing poker – it’s also found in working with self - storage facility sellers. In this Self - Storage University podcast we’re going to explore some of the most common seller bluffs and how to diffuse them.

What is The Self Storage University Podcast?

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.

Bluffing is a big part of playing poker, but are you aware it also comes up frequently in the Self Storage business. This is Frank Rolfe for the Self Storage University Podcast. We're gonna be talking all about bluffing and particularly the bluffs that sellers tell you, trying to get a reaction out of you, trying to make you do something, and most of the time it's false. Just like any other bluff, it's not true. So, let's start off with a common one. And this is when the seller says to you, "Well, I've been offered full price for this property". Typically when you threw out a price lower than the asking price, and they respond with, you know, a huff, "Well, I've been offered full price on this property", well, then why are they talking to you? Right? It makes no sense. If someone came into me and offered me full price for something, well, I would take it.

So there really is no fallback position from that wild bluff. Take it, take it. You got offered full price, take it. But I'm assuming you didn't, 'cause it's still on the market, so in that case, here's the price that I would pay. Don't let them get away with their bluff. Don't let them convince you that your offer is ridiculous and that full price must be a bargain because they've already had full price. Don't do that. Stick with your guns. Stick with the price that you came up with, 'cause you know them selling, means that they're gonna ask more than it's worth hoping to triangulate the final price. But don't them catch you off guard by doing this fake pretense, "Oh, my property's so hot, I already got full price offer". Really? Well, then you should take it. And if you don't take it, you must be an idiot, because that's how capitalism works. When we get the offer that matches our goal, our hope, we take it.

The second bluff they'll say is, "You know, I don't wanna carry the paper". Well, there's a big gap between I don't wanna carry the paper and I can't carry the paper. A lot of sellers can carry the paper. They have no mortgage debt. They're free to sell it any which way they want. But most importantly, look, values are down, cap rates are up, interest rates are up. It's part of the real estate cycle. Yeah, they should have sold back in 2020 before the cap rates and interest rates went up, but they didn't, they missed out on that deal. And now if they wanna get the price they could get back then, they're gonna have to carry the paper at the interest rate that you would've gotten from a bank back then.

But they can't pretend for a minute that prices haven't deflated on that storage property, that interest rates haven't gone up, the cap rates haven't gone up. And then, when you say, "Well, but you'll have to carry the paper, so", "I don't wanna carry paper". They may have to carry paper. In fact, they're gonna have to carry paper if they wanna get a price that the regular lending community can't support. So don't let 'em pretend like, "Oh no, I can't do. It's not on the table", it's always on the table. When you have a seller who's tried to sell something in today's market, they're gonna have to get creative. They're gonna have to get more creative than Pablo Picasso to get some of these deals done at the prices they want. So they may not want to, but they will and they can. So don't let 'em bluff you and say that that option's off the table. That option is never off the table. Even if they have a mortgage, they could carry a second on it and they may have to carry a second to make the numbers tie together.

Another bluff they'll do is they'll say, "Well, I got a lot of people looking at this". No, they don't. People in real estate use that bluff all the time. "Oh, I'm just so popular. I have a million people looking at leasing my small strip center". Well, really in that case, why isn't it already built and totally full? They don't have a whole bunch of people. They probably have nobody. Some of these sellers will even pretend to you that like when the phone rings, it's a buyer. The the phone ringing is probably someone trying to sell them insurance, but they'll chalk it up. And even if someone just called and said, "Hi, are you the one with the property for sale? What are you asking?" They'll count that as, "Oh, my phone's ringing off the hook with people wanting this property". Here's a reality check. This is the United States 2024, and nothing's really that hot going on out there. Everything's very lackluster. We got the Trump presidency coming up in January. That's fantastic. That'll spur people to get excited about life again. But for right now, there's nothing going on.

So when someone tries to pretend to you, give you this false bluff that, "Oh yeah, it's just so hot, it's so happening", and they're, "No, no, it's not". I'm sure you've been to some restaurant. You go over there, it's Friday, it's 6:30 and there's nobody in it. Nobody. And they say, "Oh, do you have a reservation?" Why would you even ask? Do you have a reservation? Clearly the restaurant is empty, but yet they wanna use that as a bluff to make you feel like they're hot, they're happening. They're the restaurant that everyone wants to go to. They don't wanna admit they're not, and no one's there. And you wouldn't need a reservation maybe ever, because they've never even had enough people in there at one time to fill it. Don't let 'em bluff you on that. Don't let 'em try and pretend to you. It's a hot commodity. It's not a hot commodity. Another bluff that sellers will do is they'll say things like, "Okay, well, all right, well, you get to close this deal in 30 days". Well, that's not gonna happen. You're not gonna be able to get the deal done in 30 days. Nobody ever could.

You have to do due diligence. That alone will take 30 days. Then you have to go out and get a loan, that'll take probably another 60 or 90 days. It's almost impossible to get a transaction done legitimately in less than about four months. Maybe three months if you're really effective. And maybe if you're the fastest person on earth, two months. One month, never gonna happen. So just call 'em out on their bluff when they say, "Oh yeah, we're gonna get... I gotta get it closed in 30 days". No, you don't. There's no way that's even humanly possible. There's no way I can get the third party reports done, find a lender and have the lender do all their documents within 30 days. Normally, when they give you that bluff, there's an ulterior motive why it has to be 30 days. Either they've got horribly declining occupancy and they don't want you to know that every month, 20 more people move out or they have a loan coming due that they couldn't get a renewal on because they're not hitting their current financial targets. But don't ever let them try and convince you that you have to get it done like Speedy Gonzalez, 'cause it's not going to happen. It's impossible.

Now, there are cases when you can expedite the whole process of diligence and financing. That, I mean, it's not... Not to be said, it couldn't be done if it was the greatest deal of all time, but the deal is probably not the greatest deal of all time. And more importantly, nobody would wanna sign up on a mission of a 30 day closing because most of it you don't control. Even if you did all the diligence in two days, finding a bank, going through the committee, getting approval, having them do all their loan documents and closing within the following 28 days, as we all know is not going to actually happen. That's really not on the menu of possibility. When the seller tells you that bluff, you just need to shoot it down on the front end and say, "No, no, that's, that's not gonna happen".

And then, finally, don't let the seller ever try and convince you that the price on the property is firm. There is nothing firm in the world when it comes to price. I've never understood people who try and tell you that a price is firm because it goes contrary to all known logic of negotiating. Seller shoots high, the buyer goes low, and then you meet somewhere in the middle, you triangulate the final price. No one would ever be dumb enough to put the price at a firm price. It makes no logical sense. I one time responded to an ad of someone who had a property for sale and price said, firm. I gave an offer that was 50% less than what the firm price was. They then admonished me and said, "Didn't you see the thing said firm?" I said, "Yeah. But I also saw that it's been on the market now for, I don't know, a year". So I'm just telling you what I think the thing is worth. And I'm not saying you gotta do it, but if you ever ever wanted, that offer's on the table.

I didn't go more than about two weeks before you can guess it. The guy called me up and said, "Yeah, okay. Is that offer still available?" Once again, it was a total bluff. It was not rooted in anything. The bottom line is just as in poker sometimes when people make bluffs, they mean it for real. Sometimes if you watch those shows on TV with poker, the guy who's got the winning hand is... He's not bluffing when he raises the ante because he knows he's gonna win. But a lot of times, bluffs are just that, they're hollow and don't fall for them. This is Frank Rolfe, the Self Storage University Podcast. Hope you enjoyed this. Talk to you again soon.