Listen on iTunes
Listen on Spotify
Watch on YouTube
Many mainstream real estate investors have a mentality of “I don’t care where my leads come from as long as the numbers make sense.” But we Thoughtful Real Estate Entrepreneurs see it very differently—we care greatly where the leads come from, for one important reason: we don’t just buy properties, we buy Opportunities. And that means we have to have lead sources that let us see and evaluate the whole Opportunity, not just the property. In this episode, Jeff explains the difference between a property and an Opportunity, and discusses why it’s better to focus on finding and buying Opportunities—not just properties.
There’s a very common perspective among real estate investors in the mainstream anyway, that sounds something like this. Gosh, I don’t care where the leads come from, as long as the numbers make sense. That’s all that matters to me. And you know, I for a long time, I’ve just found myself disagreeing with that I’ve found myself feeling very differently. That kind of rubbed me the wrong way. And for literally last couple of years, I’ve been trying to find the right way to articulate why that just doesn’t resonate with me. And I’m constantly explaining to coaching clients, some of these types of things. But I’ve got a new perspective on how to explain this, and I want to share that with you in today’s episode, so Let’s cue up the theme. So we’ll jump right in.
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented deal makers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Thanks for joining me for another episode of racking up rentals show notes for this episode can be found at thoughtfulre.com/e178. Please do us a big favor by hitting the follow or subscribe button in your podcast app maybe just looks like a plus sign. Whatever it looks like, make sure that you have clicked it so that you don’t miss any upcoming episodes. But also when you do that sends a message back to those platforms that you’re listening. And that makes them want to share this with other fellow Thoughtful Real Estate Entrepreneurs as well. Onward with today’s episode.
As I mentioned in the intro, it’s really common in our industry for people to sort of have this mentality that says it doesn’t matter where the leads come from. It just matters that the numbers work, you know, people will say I’m happy to buy properties on the MLS, I don’t have any problem with that. wholesalers, no problem. The numbers work, that’s great. If I get a direct to seller lead, that’s fine. How about a referral? Yeah, no, that’s totally fine, too, as long as the numbers make sense. Now, I’m not here to say that anybody is wrong in feeling that way. But I can tell you that I don’t feel that way. And I’ve been really working to find ways to articulate why that doesn’t really resonate with me and really kind of almost sounds like nails on a chalkboard type of thing, because I do care greatly where my leads come from, I care that the numbers work also. But I do care greatly where the leads come from, you see some sources of leads will give you properties. But other sources of leads will give you opportunities. And there’s a big difference. I only buy opportunities, I don’t just buy properties, which means I only can use really a certain couple types of sources of leads, if I want to buy opportunities and not just property.
So let’s talk about the difference between those because it might sound you know, like semantics. And I don’t mean for it to just be semantics if the words are property and opportunity. But I think there’s a very big difference between these and I want to explain that right now. A property is a commodity. A property is like inventory to a lot of people. So the word inventory is actually used, of course, quite a bit in the real estate world. You know, there’s an inventory of listed properties on the market. But what I find is that a lot of people who are investors, and again, I’m going to tie this back to a distinction between investors and entrepreneurs in real estate. I believe a lot of people who have an investment investor mentality, see properties as inventory, right, they need a certain inventory of rental properties, let’s say in order to reach a total cashflow that they want to have that creates financial independence for them.
So their mentality is like how do I get the inventory that I need? I get the inventory and put it on my shelf. And I always think that this is a little bit funny because it makes properties into commodities. Now this let’s say you’re like the local hardware store. You know, you’re the local place where people go get their bags of cement mix and they’re two by fours and some plants in the spring. So if you were the manager of that local hardware store, your job would be to make sure that your shelves always had inventory on them of, let’s say, two by fours, right. So, two by fours, you might have a preferred vendor source for those two by fours, you know, might be Acme Forest Products, and you know, that’s just down the road from you. And they’re your primary source for two by fours. But if you couldn’t get enough two by fours from them, then you probably have another supplier in mind a different company that you can go to who can provide you some two by fours, either, you know, in a pinch or on an ongoing basis, because the point is, you have to keep your shelves full of two by fours, so that there’s something there for people to buy when they walk into your hardware store. So if you were the manager of that hardware store, you might say, Yeah, I kind of prefer to buy my two by fours from Acme forest products. But it doesn’t really matter. As long as I can buy my two by fours at the right wholesale price that I can put them on my retail shelves, and sell them, I don’t really care who the supplier is, as long as the numbers make sense?
Well, that’s how a lot of real estate investors think about property properties as well, just as bits of inventory, that it doesn’t really matter where the inventory come from comes from as long as they are able to get their hands on some because once they have their hands on something, they can do what they need to do, like fix it up and resell it or rent it out, or whatever. So a property is really just a commodity, it’s like it is what it is, you know, it’s dirt, it sticks and bricks, and those dirt sticks and bricks are available at a certain price. Now you might see potential in that property in that dirt sticks and bricks. And that’s great. But that’s still just a property available at a certain price, it’s still just a commodity thing that’s kind of interchangeable with other commodity things available to you at a certain price. It’s just an investment for an investor to place their money into just another piece of inventory.
Now let me juxtapose this with an opportunity, because I hope that will help make the difference really clear. An opportunity is a property, but it’s also the complete context surrounding that property. What does context even mean? Well, context means it’s who you buy it from, and how you buy it from them, and how your understanding of who that person is, leads to your ability to negotiate a different type of deal than you could otherwise, the context could include the other properties around it the specific micro location within a greater neighborhood, the specific elements of what we would call expandability, the things that you could do to transform not just this property, but this situation, the opportunity is not just the property, it’s the financing, that goes with the property, as well, or the financing that you pair with the property, it’s the way the deal is structured.
An opportunity includes the negotiation that you have completed. In many ways, I’ve often said this is sort of one of my previous ways of trying to explain this point is that I’m not just buying the property, I’m also buying the negotiation. That’s why I can’t outsource the negotiation, because the negotiation is a huge part of what I’m actually buying in that negotiation is the context that I’m referring to. I have to be involved directly in negotiation for me to fully understand the context of the whole property, which is a huge part of what I’m actually buying. I need to be involved directly in negotiating the terms and understanding the person with whom I’m negotiating those terms so that I can make sure we are structuring the deal in the most optimal way. I need to know that the deal we’re structuring couldn’t be structured any better than it actually is.
You know, you could take the same exact property, the same exact property and with the same price, even if you were to negotiate two very different deal structures for those two purchases you would have two completely different outcomes from that deal overall, because of the deal structure. And again, we tend to reduce investing in real estate down to a property and a price. But our deal structure has a tremendous impact on how our whole experience with this property, our whole ownership, our whole profit or loss on the property is going to go. So we need to be involved directly in making sure that our deal is structured in the most optimal way, because that is a huge part of the context in the context is what we’re buying, in addition to just the property itself.
So kind of in short, I would say the property itself is just a part of the opportunity. The property is certainly important, the sticks, the bricks, the dirt, it’s absolutely important, but it’s not an ala carte, isolated sort of topic that just exists in a vacuum. If we’re just buying the property itself, we’re just buying a commodity, we’re treating it only as inventory. And we’re not seeing everything that this opportunity could present because the opportunity has to include also, besides the property, the context in the negotiation and the deal structure that comes out of that negotiation. I don’t really want inventory. That’s just a commodity opportunities aren’t are not commodities, because while you could have two properties that are very, very, very similar, there’s no two opportunities that are exactly alike. Because the context of two very similar properties could be very different.
Picture a neighborhood, we have two properties that are just as close to identical as possible. No two properties are literally identical. But they’re right next to each other, they’re virtually indistinguishable. But the context for each of those two properties could be 1,000% different, because the owners are different people with different situations with different goals, with different tax scenarios with different lengths of ownership with different needs, with different worldviews. And both of those two properties, when you just look at them as properties would look very, very similar, almost interchangeable. But when we look at them as opportunities, and we consider the greater context, beyond just the six bricks in the dirt, that’s when we see that the opportunities are very different for these two properties.
So where does this come back to on an actionable level? Well, I started this podcast by talking to you about the attitude of people that says, I don’t care where my deals come from, I don’t care what the source of my leads are, I just need to have enough of them so that I can see which ones make sense numerically, and in terms of, you know, penciling them out. But when we insist on only buying opportunities, and not just settling to buy properties when we only buy opportunities, we can only then source our deals in a way that allows us to see the context, right if the context is the difference between a property and an opportunity. We have to be sourcing our deals in a way that gives us access and perspective to the context. Opportunities require sources that give us context.
I’ve done a podcast in the past on why I would never buy properties from wholesalers. For me, it’s not because wholesalers are necessarily bad. It’s not because necessarily I have a problem with it ethically, although perhaps there could be moments of that. That’s not my primary concern. My primary concern is if I get an email or a call or a text from a wholesaler, all they can say is, here’s the property. Here’s how many bedrooms and bathrooms it has, here’s its condition and here’s a price. Do you want it that is reducing me to only buying a property but I don’t treat my business like an inventory like a shelf of properties that I just have to source inventory for and I don’t work care where they came from. I care greatly because I don’t want to just buy a property. I want to buy an opportunity. And I can’t buy an opportunity from a wholesaler because I will never get the context. The whole dynamic that’s created there is I get an opportunity to buy this property at this price or not. I’m not going to get to meet the seller. I’m not going to get to understand the seller, I’m not going to get to structure the deal, the way that I see fit the way that I think is optimal for the seller’s needs. And for mine, I’m not going to get a chance to do any of that.
A wholesaler email is simply offering me a piece of inventory. And I don’t want a piece of inventory. Frankly, buying a listed property is very much the same, you almost never get the opportunity to explore and discover more of the context. All you get is the information about the property and the price. But you don’t get access to the rest of the situation that allows you to understand that context that is so critical to converting something from buying a property to buying an opportunity. An opportunity is a complete negotiated package. A property is just dirt sticks and bricks. But I don’t want to buy a property properties or commodities, I want to buy an opportunity. And I want to know that the negotiated package I have created is as good as it possibly can be for me, and for the seller, frankly, but I want to know that every little nuance of the context is reflected in how we are negotiating every aspect of this transaction.
And I believe that when you’re looking for opportunities, you’re acting as an entrepreneur, not just an investor. And if you want to make headway financially in your life using real estate, I believe we can’t just be investors, we can’t just be plunking our money into, quote, assets that we think are real estate, we have to be looking for ways to create value and to create wealth. That means we’re looking for opportunities. We’re not just looking for properties, we’re looking for properties, and the context surrounding those. We’re looking for an entrepreneurial canvas that we can work with to create something great.
That is it for today’s episode of Racking Up Rentals. Again, show notes for this can be found a thoughtfulre.com/e178. Please do us a big ol favor and yourself by hitting that subscribe or follow button in the podcast app. And you know what’s even better is if you rate and review the show, oh my gosh, I see every single one of those. And I really appreciate it and it’s tremendously helpful actually to help grow the show. Thank you so much. Did you know we have a Facebook group for Thoughtful Real Estate Entrepreneurs as well? Yep, it’s true. It’s called Rental Portfolio Wealth Builders. We’d love to have you join us there just go to group.thoughtfulre.com and the magic of the internet will redirect you right to that spot. If you liked this episode, please take a screenshot, post that screenshot on Instagram and tag us. We are @thoughtfulrealestate. I will see you the next episode. Until then, this is Jeff from the Thoughtful Real Estate Entrepreneur signing off.
Thanks for listening to Racking Up Rentals where we build long term wealth by being win-win dealmakers. Remember: solve the person to unlock the deal and solve the financing to unlock the profits.
Leave a Reply