JF1353: How To Win Over An Apartment Broker (From An Apartment Broker) with Thomas T Furlow
Thomas has been a commercial broker who specializes in multifamily for years now. One of the first things we dive into is how a newbie investor can win over an apartment broker. From offering to pay for your broker’s time to knowing the market like the back of your hand, and more secrets revealed in this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Thomas “T” Furlow Real Estate Background:
- Commercial Real Estate Broker – Deaton Investment Real Estate, Inc.
- Has a diversified real estate background and has been a multi-family broker for more than 10 years
- Handles operations and general brokerage duties, working with sellers to market their properties for sale
- Consults investors on buying decisions
- Based in Raleigh, North Carolina
- Say hi to him at https://www.deaton.com
- Best Ever Book:The Bible and Halftime by Bob Buford
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, T Furlow. How are you doing, T?
T Furlow: I’m doing great, Joe. Great to be on!
Joe Fairless: Yeah, nice to have you on the show. A little bit about T – he is a commercial real estate broker with Deaton Investment Real Estate. He has a diversified real estate background. He’s been a multifamily broker for more than ten years; he handles the operations and general brokerage duties, as well as working with sellers to market their properties for sale. He consults investors as well on buying decisions. Based in Raleigh, North Carolina. With that being said, T, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
T Furlow: Yeah, Joe, and thank you for the introduction again. I’ve been a commercial broker, really specializing in multifamily for the last 10 years. I work in a small private shop here in Raleigh that sells properties all across North Carolina, anything from 2 to 200+ units. So we work with beginning investors, on up to institutional investors… And really, it is a lot of fun. We get to interact with a lot of different types of people, and obviously have many great relationships across the market. It’s fun, we’ve been able to see a lot of folks kind of grow up from buying duplexes to controlling 1,000 units, kind of like your story… So it’s a neat mix of folks that we get to work with.
Joe Fairless: The beginning to institutional investors, from 2 to 200 units – a question that is asked frequently is… It’s more of a complaint from beginning investors, so it’s not really a question; I’d love to hear your thoughts on this. The complaint from beginning investors who are looking to get into larger apartment buildings is that the brokers just won’t give them the time of day because relatively across everywhere it’s pretty hot for multifamily. So first off, what are your thoughts on that?
T Furlow: Well, unfortunately there’s a little bit of truth to it, and I’d be lying to you if I said that certain days I have to make a decision – am I gonna work with client A, that’s bought multiple properties before, or client B, that I’ve never worked with. So I guess some of that is just the uncertainty with a beginning investor. The question that goes through a broker’s mind is “Are they really gonna pull the trigger on something?”
So I guess what I would counter that with is as a beginning investor it helps to take steps to prove to your broker that you are serious, and I can tell you that some of the people that I’ve had success with, kind of graduating those steps from beginner to a more seasoned investor, have walked into my office and said “Your time is valuable and I want to pay you for it, even if I don’t buy anything.” And often times I’ve declined that payment, but what it’s done is it’s proven to me these folks are actually gonna do something about what they say.
Joe Fairless: I had not heard that approach. I love it. Thank you for giving that dialog, back-and-forth… And how much do they offer to pay?
T Furlow: Great question. I think that the buyers or investors that are in that position look at a seasoned broker, and whether that’s me or somebody in California or some other state that’s in a similar situation – they’re gonna look at that broker really as a consultant… So it seems the rates offered in that sort of consulting range between $150-$200/hour.
And again, in the grand scheme of things, if somebody says “I wanna come in and pay you $150”, $150 is great, but what I’m hoping is I wanna turn this person into somebody that’s gonna go from that to buying ten properties with me throughout my career, and it’s just kind of that initial step that kicks things off and tells us that they’re serious.
Joe Fairless: I love that. I’m going to make a note of referencing this interview for anyone who asks me about how to really establish credibility with the broker. And that’s not the only way; that is one way. Ultimately, it is addressing (it sounds like) the uncertainty of the question that is in (your mind, or) a broker’s mind, “Are they really gonna pull the trigger on something?”
So what are some other things? You said that you have people who have taken steps to prove that they are serious, or that’s the approach to take… So tactically, what are some other things an investor can do to prove that they will pull the trigger?
T Furlow: Another great question… I give people a handful of suggestions, and really from our side of the table it’s almost like marching orders… And the people that come back and say “Okay, I’ve done this”, again, move to the top of the list. And I think the first thing that a buyer really has to do for themselves is acclimate themselves to the market. As you will know, real estate is a local and even hyper-local business, and I can sit here and tell you “This area of Raleigh is great, and this area of Raleigh or Durham is one you should stay away from”, but I really would be doing you a disservice, because as fast as the market is changing and as fast as our market in particular is growing – and I know it’s happening in other cities across the country – you drive block by block and those generalizations change.
So a buyer that’s willing to get in the car and go drive by properties – not just ones that are on the market, but ones that have sold… “Hey T, I went to your website and I saw these ten properties that you sold, and I went and drove by all of them, and I can tell you right now, I’d have no interest in these six… But these four are still interesting to me.” Immediately, I’ve got a better feel for “Oh, I know what this buyer likes, and more importantly, what they don’t like, so I’m not gonna waste time with him.” So the next time they call me about a property, or I’ve got a property that I wanna present to them, I go back to those notes, and “They didn’t like that part of town”, or “They did like that part of town because of reasons 1, 2 and 3.”
So acclimating themselves to the market, taking the initiative to drive by properties and provide that feedback.
Number two is how you’re gonna pay for it.
Joe Fairless: Yeah… Details. Those are details, come on! We’ll brush over those. [laughter]
T Furlow: So somebody that’s willing to share financial information – “Here’s the amount of cash I have on hand, here are the lenders I’ve talked to”, or “Hey T, who do you recommend I talk to?” And then a simple follow-up of “Hey, I reached out to lender A, B, C. I appreciate that referral. Here’s the information I provided them, and they say I’m good to go.” That’s obviously a great sign, again, that they’re serious about actually making something happen.
And then I think buyers that are willing to also maybe even start taking the steps of putting together the whole team. “I’ve engaged this contractor, I’ve engaged this inspector, I’ve engaged this property manager to be part of my team. Here’s the attorney that I’m gonna use.” Because all those are steps that have to be taken, and the buyer that has that formula put together on the front-end is one that we know is serious.
Joe Fairless: As far as someone on the “How you’re gonna pay for it” part, who plans on bringing in other investors, what would sound good to you that that person can say while they’re still being transparent and truthful?
T Furlow: Absolutely. Great question, and the reality is in the market we’re in right now in 2018, a buyer that is putting together equity partners really has to have the money committed and the LLC or the joint venture documents drafted. If you’re waiting for a property to then pitch back to your investors, and “Okay, now it’s time to finalize these LLC documents”, the property is gonna be sold by the time you get there.
You really need to go ahead and formalize those partnerships… And that’s really not even so much for the broker that I say that; it’s for the seller. When a seller in this environment is looking at multiple offers, those are the questions they’re going to be asking, and it’s gonna make the buyer’s offer that much stronger if they have those details in place.
Joe Fairless: And then just to ask a follow-up on that, because when we do syndications, we don’t have the new entity formed for the property we’re about to buy until after we actually have it working through the contract, and we don’t have the money committed for that particular property because we haven’t shared it out… But when we do get it under contract, then we fund it, and all is good, and we close within 60 days, or whenever we need to. So in what you’ve just described, my group wouldn’t qualify, but help me understand that a little bit.
T Furlow: Sure, I appreciate the chance to clarify. I guess I was still answering within the context of a newer buyer or a beginning investor.
Joe Fairless: Fair enough.
T Furlow: Within the context of somebody with a track record, certainly you have the ability to point back to that track record and get the seller and the brokers and anybody else involved to a level of comfort.
Joe Fairless: As far as a newer buyer, beginning investor – they’ve got some real estate experience, but they haven’t closed on, let’s say a 100-unit, for example. You’ve got a 100-unit, and the newer investor has some real estate experience (not a lot), they do have the team together, and they’re from out of state, but they’ve got a team bio sheet with some of their lead investors on there. What would that do, if anything? Would that qualify them?
T Furlow: In my mind, absolutely. I think without a doubt somebody that — again, it’s as much about communicating efforts and thoughtfulness and planning as anything. In my mind, the spirit of those actions speaks for itself.
Joe Fairless: Okay, interesting. Good stuff. You dashed hope, and now you’re giving back hope… Giving back hope to some beginning real estate investors who are looking to do larger deals.
T Furlow: There’s always fallback positions.
Joe Fairless: [laughs] Well, with how you work with your clients, there are some situations I imagine that aren’t cookie-cutter in terms of the broker fees that are charged. For example, if you have an off-market deal and you send it to a qualified buyer that you’ve got a good relationship with, what would that fee be, compared to if you were to market a deal for a seller, and that seller paid you to do the whole song and dance, create an offer memorandum, do the tours, all that stuff? How do those two fees compare, if they are different at all?
T Furlow: They are different. I think last year we did — when I say “we”, Deaton Investment Real Estate is a three-man brokerage shop that works as a team… And we were fortunate enough to actually be recognized just this week by CoStar as one of the power brokers in our market, which is great…
Joe Fairless: Congrats!
T Furlow: Thank you. But of course, we’re always like “Alright, where is the next deal?”, it doesn’t matter what we’ve done in the past… But we almost hit the 100-million-dollar mark in volume last year, and I think — I should have known this coming into the conversation, but I wanna say about 50% of those were off-market transactions, and a very high percentage of those were the efforts of cold-calling and scratching, and “We’ve gotta buyer”, and we’ve gotta find something for them to buy, because there’s just not enough on the open market.
In those situations, we are negotiating those commissions on a deal-by-deal basis. Obviously, the larger deals, and I would say in our world anything over 8, 9, certainly 10 million dollars qualifies as a “large deal.” It’s not uncommon that we just get a flat fee of maybe $150,000, or something, on a deal like that, as a finder’s fee… And depending on how thin the deal may get, our clients sometimes have to come back to us and say “Hey, can you help me out here?” And obviously, we wanna get deals done, so we’re open to have those conversations… Whereas a listing agreement is gonna be more percentage-based, and we see them get capped from time to time, but we certainly try to get a healthy enough commission that we can get paid… And we really are proponents of co-brokerage splits, that in the multifamily world is not very commonplace anymore.
Our advice to sellers is that the market will speak for itself. If you truly expose the property to the maximum amount of qualified buyers, they will tell you what it’s worth, and through competition you will drive the price… And you generate that competition by incentivizing other brokers. So in a world where it is not uncommon for multifamily brokers to list properties with their own commissions taken care of, but with no co-brokerage payout, we try our best to advice sellers that that is not in their best interest. It doesn’t mean we always get to that end result, but that is certainly some of our Best Ever advice.
Joe Fairless: It’s really interesting… What would the numbers look like (in terms of the split) on either a deal you’ve done in the past, or hypothetical, when you sell a deal and you do that split?
T Furlow: Yeah, it’s uncommon that you’re gonna get paid more than a 6% commission, and in that scenario we’d split as high as 50/50, with 3% and 3%. Everything can be deal-specific, with the level of complexity on either side of the table, exactly how that gets split, but we try our best, again, to incentivize the other brokers out there running around with qualified buyers to come our way, because we hope folks will do the same for us when we’re in their shoes.
Joe Fairless: Yeah, it’s a win/win… A win/win/win. I think a lot of people are winning there.
T Furlow: And one of the objections we have to overcome with our sellers is, well, this actually gives us more incentive to wanna sell it ourselves, because then we don’t have to share it… But if we do, there’s meat on the bone for everybody.
Joe Fairless: And why wouldn’t a seller say “Absolutely!”, if they’re saying “If you wanna split your fee, fine with me, as long as you just sell it for the best price”? Why wouldn’t 100% of the sellers say that?
T Furlow: I think especially in the market we’re in right now there is a perception that there are enough buyers out there that it doesn’t matter… And “I’m gonna pay you your fee, and I’ve got plenty of other brokers chasing me right now, so I can negotiate your fee down to a pretty thin margin, but then if you wanna share that, that’s up to you”, but generally in those scenarios there’s not enough meat on the bone, so it makes it pretty difficult to do that. That’s one of the downsides of a good market for a broker; we do more transactions, but often times we’re taking a haircut.
Joe Fairless: Yup. Pros and cons in every market.
T Furlow: I just want to circle back to something, Joe… On the buy side, I guess part of my advice would be a broker really can’t be a buyer’s best resource. We obviously feed our families by doing deals, and the folks that make it easy for us to do deals with them are the ones that we call first, because we feel like we’re gonna be protected, they’ve proven themselves, either through closings or through other actions, that they’re serious and willing to compensate us for finding them something to buy. So if it’s an off-market deal — and look, there can be various levels on the off-market deal; there can be a simple finder’s fee… That might be a thinner commission than, say, “Okay, this is a finder’s fee, plus I want you to help me walk through my due diligence process.”
Joe Fairless: So if a beginning investor were to layer that in, what we talked about, and then you said “Yeah, that sounds good”, and then were to layer the finder’s fee in, and proactively offer that up – what are your thoughts there?
T Furlow: Well, I think they’d be ahead of their competition, and more likely to see more deals. I think where you have to be careful or what I would caution folks about is real estate can be a small world, and there are a lot of brokers out there chasing deals and running with buyers, so you’ve gotta be a little careful about talking to too many folks, because then you do kind of revert back to “There’s somebody else out there in the marketplace that’s gonna cut me out or not protect me if I bring them something.” There’s a level of trust there that still has to be created.
Joe Fairless: I’m glad you brought that up, because that’s a tricky part of the process, especially when you’re starting out and you don’t have the track record, the credibility… Or maybe you don’t have any contacts and you’re just looking at LoopNet – “Hey, they’re listing some properties. Maybe they’re an active broker. I’m gonna reach out to them… I’m gonna listen to this podcast with Joe and T, and T said that I’m gonna set myself up really successfully with this broker if I do the things we talked about earlier, plus offer a finder’s fee. Well, I do that, and then I don’t really see too many deals… I do that with three or four people, don’t see too many deals, and now all of a sudden I’ve got — maybe one or two of them eventually pick up, but then they bump into each other… Is that a negative for me as an investor?”
T Furlow: The reality is in the real estate world those situations are gonna present themselves. They’re almost unavoidable. My advice is always be truthful. I think if you’re above board with people and tell them “Here’s who I’m talking to, here’s who I’ve talked with”, or even simply asking the questions, “Why haven’t I see deals?”, often times brokers are gonna give you feedback… “Well, you’ve told me you wanted this, you’ve told me you wanted that. Your parameters are too narrow; or they’re too broad, we’ve gotta narrow it down some.”
But when those situations arise where maybe brokers are bumping into one another, you just have to bring everybody to the table and say “Here’s how this played out”, and often times those situations can be resolved with a very honest and candid conversation. It’s not always gonna be the case, but in our world that’s proven to be the case more times than not.
Joe Fairless: This is great stuff. One last follow-up question on something that I had in my notes, but I didn’t fill in yet during our conversation… You said larger deals, over 8 million or so, and we talked about maybe a flat fee… What about less than 8 million? What’s the range? You said perhaps up to 6%, but what’s the typical range for the fee?
T Furlow: I really wish I could answer that question. There’s a level of complexity with every deal that varies. Again, I would say 6% is probably the max, and once you get over 5 or 6 million dollars, that gets a little harder. $300,000 commissions are rare. We’re seeing them, but they’re rare. It starts to work its way down into the 4%, even 3% range.
Then you get in the portfolio deals, where you’re selling multiple properties, and obviously commissions get cut even more from there, if there’s gonna be multiple hit with one entity. I’m never gonna fault a seller or a buyer for wanting to make the deal favorable to them, as long as they keep in mind that as a broker this is how we bring value to a transaction, and what we do. Obviously, it’s gotta be worth our while, too. And most of the folks that we work with see it both ways, and hopefully that speaks to why we’ve had some success.
Joe Fairless: This is gonna be a tremendously helpful conversation for investor who are looking to get into larger deals, so I really appreciate that. What is your best real estate investing advice ever?
T Furlow: I like to tell people to make small mistakes. I think a lot of people out there are always looking for the perfect deal, or are so scared to make a mistake that they get to the point of the paralysis of analysis. I like to tell people “Don’t avoid mistakes, just make small ones.”
Joe Fairless: Yeah, I like that.
T Furlow: You can always come back from a small mistake. Unfortunately, a lot of people didn’t follow that advice in 2008 and 2009. Those results spoke for themselves, with the amount of leverage that was in the market. That was not a fun time to live through… But that would be my Best Ever advice.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
T Furlow: I am. Fire away!
Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
T Furlow: Man, there’s so many… I’m gonna answer it with two. The first is gonna be the Bible, because that’s where I get my roots and my values from. I’m actually reading a book right now called Halftime, by Bob Buford. It talks about going from a life of success to a life of significance. I would highly recommend that.
Joe Fairless: Best ever deal you’ve done?
T Furlow: Just last year, an off-market deal that we entered into in a position as the buyer, and assigned to the eventual buyer as our way of collecting our commission. It was 100+ units here in Raleigh, and probably the one that we took the most risk on too, but it worked out.
Joe Fairless: Is that typical, to go under contract and then assign it?
T Furlow: Not for us, that’s not our typical model… But we had a seller that was very nervous about giving people information, and that was the only way we could get information. And we had a hunch that once we saw that information, we would see an opportunity, and our hunch proved to be right.
Joe Fairless: Wow, that’s pretty cool. I hadn’t heard of anything like that before.
T Furlow: It was not our intention going it. There was a full intention to close it, and then we realized actually after seeing the opportunity that it perfectly matched a client that we’ve done a lot of deals with, and we decided to let them have the fun.
Joe Fairless: [laughs] What was the total commission on that one?
T Furlow: I can’t tell you that, I wish I could…
Joe Fairless: Well, but you still had fun, too.
T Furlow: Yeah, we had fun too, and I will say I think it’s our biggest one ever.
Joe Fairless: There you go, good. And what’s a mistake you’ve made on a transaction?
T Furlow: A very minor clerical error in a contract, that I assumed everybody knew it was a clerical error, and did not communicate thoroughly, and boy, did that come back and bite me.
Joe Fairless: What was the error?
T Furlow: It basically came down to whether or not a box was checked… And I should have just called everybody back to the table and say “Hey, let’s clear this up”, and made an assumption and it turned out my assumption was not other people’s understanding… So that kind of goes back to the rule that I shared earlier – just always be truthful and above board; it was not intentional in any way to mislead or misrepresent, but I should have just gone ahead and had the conversation, rather than letting it play out otherwise. But we worked through it, fortunately.
Joe Fairless: Good, good. Best ever way you like to give back?
T Furlow: That’s gonna be my favorite question. So for me, my story – I did not always have the greatest father presence in my life, and sports coaches, teachers and a lot of great men entered my life and filled that role, so I really enjoy being a coach for U-sports. My son is playing baseball and I coach his team; I help in many other capacities, in sort of a similar way. I’m involved with a group called “Purpose-driven Baseball”, which is a [unintelligible [00:25:45].02] baseball ministry that uses the game as a way to share the Gospel, but really try to do it the right way and teach kids more than just baseball, but teach them about life and about a life of character. So I really enjoy giving my time and giving back that way.
Joe Fairless: And how can the Best Ever listeners get in touch with you?
T Furlow: They can find me on our company’s website, which is deaton.com. My e-mail, link to the LinkedIn profile, phone numbers are all right there.
Joe Fairless: We learned so many things that will be helpful for investors who are looking to scale up, looking to establish more credibility with brokers… I’m just gonna list some of the things you mentioned.
1) consulting payment
2) acclimate themselves to the market
3) how you’re gonna pay for it – have a plan for that
4) for the referrals that you are provided from the broker (if any), follow up with the broker about what transpired after that conversation and what was the result of it.
Another is putting a team together, making sure you have that… And then lastly, offering a finder’s fee for finding off-market, or just deals, and the transaction. So lots of great tactical things…
Also talking to us about the fee structure and what we can expect. Many variables in play, but some frame of reference you certainly gave us, on different scenarios. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
T Furlow: Thank you, Joe.