In real estate investing, we use the word “deal” A LOT. It’s probably our favorite word as real estate investors.
Many (most?) real estate investors have a perspective that essentially says:
“A deal is a deal, no matter where it comes from.”
I, however, am not one of the people who shares that perspective.
Why? Because we actually often incorrectly use the word “deal.” We use “deal” when we should be saying something more like “Property.”
And a Property is very different from a Deal. Understanding this distinction could prove to be very helpful in a person’s REI journey.
Here’s a helpful way to distinguish between a Property and a Deal.
–Property: the physical property itself, its financials (rents, NOI, etc.) and its price and/or terms.
–Deal: the unique vision, perspective and skills an individual investor brings to a specific Property; the resulting opportunity that unique individual investor sees.
Said differently:
Property = Property
Deal = Unique Investor + Property
Properties are what they are. They can be found.
Deals, though, are different based on each individual investor buyer. Deals are CREATED, not found.
Nobody can “send you a Deal”; they can only send you a Property, and then you can apply your own lens to it to see if it’s a Deal.
Let me give you a visual metaphor to explain the most unique and least understood aspect of a Deal.
A Unique Metaphor
Here’s where it gets a little crazy–a little woo woo–but this is the super important part. Stick with me.
Imagine you and a friend are in a giant field–at least a mile across.
Right in the middle of that field, at least a half mile away from you, is a giant object, 30 feet tall. Picture it in your mind.
We are going to use this image for two different scenarios:
1) Seeing the giant object as a Property
2) Seeing it as a Deal
Seeing the Giant Object as a Property
As you approach this giant object, it doesn’t change at all. It is what it is. You see it more clearly as you get closer, but it itself does not change.
You could walk towards it from the west. You could drive a truck towards it from the east. Your friend could bike towards it from the north. It would be the same object.
You could get right up next to it, and your friend could remain 20 feet away from it, and again, it would be the same object.
None of those things would change it–it’s the exact same object no matter how you approach it, how close you get, or which angle you take to get there. It is what it is, and you’re both seeing that same thing.
Seeing the Giant Object as a Deal
As you start to walk toward it, it begins to look a little different. You move one hundred yards to the left and pick up a bike laying on the ground. It looks different from this angle…but you start to realize it doesn’t just LOOK different…it actually appears to be morphing right in front of you.
You start to ride the bike rapidly toward the object from this new angle; the faster you go, the more it seems to transform in real time, right before your eyes.
Meanwhile, your friend has been jogging around it completely to the far outside opposite end of the field. They find a truck, and your friend gets in and starts driving toward the object, which continues to change its form as they approach.
To both of you, it’s completely unrecognizable from the object you saw when you began walking on the other side of it…and you’re both seeing something different from each other right now.
You aren’t just seeing it differently….IT actually morphed based on your movement and your own viewpoint on it.
Back to Real Estate…
A Property is a Property. It doesn’t matter if it’s me looking at it, or you looking at it. Doesn’t matter if it’s listed on craigslist, the MLS or completely off-market. The property, the numbers, the NOI, the stated price and terms….they are what they are.
A Deal, though, is a reflection of that Property in the context of TWO critical things:
1) The person looking at it–THEIR vision, THEIR perspective, THEIR strengths and skills, etc.
2) HOW they encountered it
Let’s break it down:
The Person Looking at It
A Deal is in the eye of the beholder. I have a different lens than you, and thus we see different things. I also lack the skills you have, but have my own set of strengths. As a result, what’s a Deal to me is different than what’s a Deal to you. I can make deals work that you likely can’t, and vice versa–because we are different people from each other.
There are properties being purchased every day that didn’t look like a Deal to me….but they did to the person who bought them.
How They Encountered It
As an investor moves toward a Deal, the Deal itself changes. Why? Because as we know more, we can see new avenues of possibility that completely change what we are looking at.
So, we are best served by a “lead generation” channel that gives us the MOST visibility into ALL the possibilities.
How We Get Our Leads Matters
Different lead generation channels vary tremendously in how much insight we get. And let’s be honest: the most common lead generation channels (ie listed properties on the MLS) give us very, very little insight. We get the Property information and not much else.
The most common approach–approaching the Property when it’s listed on the market–generally only gives us insight into the property and its numbers, etc.
We get no vision into the Seller themselves. The context of the sale. How the Seller is hoping their life will be better if they sell the property.
Many [mainstream] investors will say those things don’t matter.
But they do matter, if the buyer wants to be sure the Deal is designed to extract the most value. In other words, to make the Deal as good as it can be.
The Bottom Line
“A deal is a deal no matter where it comes from” is just not true.
More accurately, “a Property is a Property no matter where it comes from.”
But for a DEAL, on the other hand, it matters TREMENDOUSLY where it comes from, because where it comes from has a huge impact on our ability to apply our own vision to it and see how WE could make it work.
The Bottom Line of the Bottom Line
Now that I’ve explained all my metaphors and philosophy, I’ll give it to you as straight as I can:
You’ll never know how good a deal could have been if you aren’t personally and directly communicating with the Seller and getting first-hand insights from them.
(Very specifically, with direct access to the Seller, it’s super possible to turn a “no Seller Financing” deal into a “YES Seller Financing deal,” or turn a “bad terms Seller Financing deal” into a “GREAT terms Seller Financing deal.”)
That’s why I don’t buy listed properties–I can’t stand the idea of wondering how much it better it could have been if I’d had access to the Seller themselves.