The math on paying a retainer for land leads won't sit still

I move slowly and I know it. Two years of looking, no purchase, mostly because the small multifamily I want at the price I want doesn't come to market in my county more than a few times a year, and when it does I'm the fourth call.

Someone who does driving and courthouse work in my area offered a straight arrangement: $600 a month, he sends me everything that fits my box before it lists, exclusive to me for five days. His box definition is fine, 4 to 12 units, built pre-1985, within a defined ring of the city.

So $7,200 a year. If it produces one purchase in two years that I wouldn't otherwise have found, that's $14,400 in finder's cost against a building I'd be buying around $600k, so 2.4%. Compared to what I'd pay in a bidding situation for the same building, that's cheap. Compared to zero, which is what I've spent so far, it's a lot.

What I can't resolve: my slowness is the constraint, not my deal flow. I've passed on two things in eighteen months that I could have bought. If I pay for a faster pipe and keep taking three weeks to decide, I'm renting a firehose and standing next to it with a cup.

He also has three other clients and I don't know their boxes. If one of them overlaps mine, the exclusive five days is worth less than it reads.

The decision is whether to sign a three month trial, ask him first how many pre-1985 4 to 12 unit properties he found in the last year, or fix my own decision speed before I pay anyone.

Answer

2nicole_adeyemiPassivePRO5

Ask the historical question before you sign anything. If he found four properties in your box last year, $600 a month is $1,800 a property for a look, and you'd pass on most of them. If he found eighteen, the retainer is obviously fine and your problem is entirely on your side of the table.

He should be able to answer that in one sentence. If he can't, he hasn't worked your box before and the $600 is paying for him to learn it.

On the overlap, just ask him to write into the arrangement that no other client of his has a box that includes 4 to 12 units in your ring. That's a normal ask and his answer tells you plenty either way.

2 replies

1brandonlee36Passive

The firehose line is the honest part of your post and I'd sit with it longer than the pricing.

When I was slow, what fixed it wasn't more deals, it was writing down in advance what I'd say yes to. Cap rate floor, minimum unit size, maximum deferred maintenance I'd take on, all decided while nothing was in front of me. Then the five day window becomes a checklist instead of a soul search, and three weeks becomes two days.

Do that first. It costs nothing and if you still can't move at the end of it, you've saved $7,200. If you can move, sign the trial and you'll actually use it.