Chronicles of a Counselor

My first Client Applicant

A residential agent referred a couple to me, and an evening appointment was arranged. It was too soon after my first Chatham class to have acquired a high backed chair, but the tape recorder was in place and I was very nervous.

After handshakes and a few brief remarks I began “Why don’t you describe your situation?”

I discovered that they were both MBA’s and the wife was a CPA, both employed with Fortune 500 companies, very, very frugal because they wanted to retire at age 40. They were in their late 20’s at the time. They had $40,000 to invest and had been looking at 6 unit apartment buildings in a certain suburban neighborhood. I asked what method they had been using to locate property. The man opened his briefcase and removed the Sunday real estate ads and a two-inch stack of real estate agents business cards! He said they got the paper on Saturday evening, circled ads and then called on Sunday to learn more and visit the properties. They knew more agents than I did! I asked many questions i.e. what they wanted the property to do for them, would they consider commercial or industrial property, geographic limitations, who was the decision maker, etc.

The response was they had an uncle who had a six unit, and lived in the largest apartment. They wanted to emulate him. As far as value was concerned, they wanted a property that would “pay for itself in ten years if it was free and clear”. That translated into a 10 cap rate. They gave me copies of their tax return. In the future they might consider commercial, but not industrial and they wanted the property to be within 12 miles of their home.

About an hour and one half later (out of questions and not knowing where to go next), we arranged for another appointment in a week.

That week I gave a great deal; of thought to their situation and made several APOD’s on a six unit in their choice location (which had an 8% cap rate), a 12 unit, a 24 unit out of their mileage range and some hypothetical commercial properties. I titled the six units “Ideal Property”

At their next appointment I showed them each APOD and went over the benefits and detriments of the properties.

When they were finished reviewing the materials, the husband said to the wife “Honey, for a year, we have been looking for the wrong thing”.

I knew then that the agents in that stack of business cards were history. However, I really had nothing to show them that really fit their needs. We agreed that I would search for an appropriate investment and contact them when I found something.

The following week, I attended a Warren Harding class and marketing session being held two hundred miles away. While there, I found a property that had all the financial benefits for these clients, but geographically out of their area, and it was an industrial property. Still, I was excited about these benefits and couldn’t wait to get back.

Upon my return, I found a message waiting that they wanted to buy the 12 unit I exposed them to, even though it wasn’t very beneficial, in my opinion, to them.

I called them and they wanted an appointment so they could make an offer. When they arrived, I had all the information and projections on the industrial property and asked them to look it over and give me their thoughts. The property was three years old, had a fifteen-year mortgage with twelve years remaining, was tenanted by a Fortune 500 company, bumps in the lease, was virtually management free, had little cash flow, and was selling for about $200,000.

A fellow counselor listed this property, now an SEC, and we arranged for him to show the property to them the following weekend.

They went, they saw, they bought!

Years later, they exchanged out of that property at a value of about $450,000 when it was free and clear. By the way, their tenant went bankrupt, but a new tenant was found promptly.

That property was the first in a long series of acquisitions and they met their early retirement goal well ahead of time.

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