As a multifamily real estate broker, I have the benefit of knowing when apartment assets are coming for sale well before any other investors. I know when loans may be coming due, when there’s a conflict between the ownership partners, or a number of other reasons that require or force an asset to be sold. And I’m often asked why I don't try to buy those assets myself first. Here are five reasons.
#1 - It's a conflict of interest to other buyers if I cherry-pick assets for myself instead of taking it to them. If customers see me buying the assets that they could have bought, they're not going to hire me. Most really good buyers and sellers are tracking, or at least are aware of, every sale in the market and who the buyers and sellers are by looking at the public records.
#2 - It's a conflict of interest with the seller who called me. There's just no way to know for sure if my offer would be higher or better than some other buyer’s offer.
#3 - I were to buy the asset, I have to be willing to lose the listing and the resulting commission. For example, let's say someone asks me to list their apartment asset for $4,000,000 and I offer to buy it for $3,750,000. If the seller rejects my offer because he believes he can get the $4,000,000, then he's lost all confidence in my ability or willingness to try to find someone to pay what he thinks it's worth. What would have been maybe a 3% commission has now turned into a $120,000 opportunity loss to me. Real estate brokers who elect to purchase assets have to be willing to lose the listing fee if they cannot negotiate a successful purchase.
#4 - If investors begin to see that I also buy apartments then they'll start questioning why I don't buy every listing I bring to market. It will become very difficult to sell a deal to an investor if they ask me why if it's such a good deal am I not buying it myself? As a real estate agent, how do you answer that question without looking silly?
#5 - Reputation is the most underrated asset a real estate broker or investor possesses. Real estate agents should want their reputations with sellers to be that they will bring them the highest price at the best terms and from the highest quality buyers that exist. Real estate agents should want their reputations with buyers to be that they consistently procure and present them with high-quality listings that match their criteria.
Like everyone else, I want to be able to retire with residual income in real estate. I just choose not to do it by competing against my own customers. So as a result, I mostly buy office and industrial assets. Of course, from time to time I buy smaller, under 10-unit apartment assets, but that’s because my focus is on selling over 10 unit assets. Even if I weren't a broker, I would still prefer to buy larger apartment assets because I think it's the investment well into the future.