When we look at a property, and we see the same thing everyone else sees….that’s a problem. But when we look at a property, and we see something DIFFERENT, and we have a bigger vision than others, all sorts of opportunity arises! In this episode, Jeff talks about the importance of being identify the hidden treasures in a deal, and how those hidden treasures can create much better deals for Thoughtful Real Estate Entrepreneur buyers. Jeff also gives several examples of different types of hidden treasures to learn to look for.
So when you look at a property, look at a deal, do you see the same thing as I would? Do you see the same thing as the seller sees? Do you see the same thing as maybe other people who are also looking at that property? See? Well, the answer might be Yes, but I hope for you that the answer is no, I hope that you are seeing a hidden treasure in a deal. And in this episode, we’re going to talk about finding hidden treasures and deals, why it’s so important and how you can hone your skills to do it. So let’s cue up the theme. So jump right in. Welcome to racking up rentals, a show about how regular people, those of us without huge war chest of capital 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, we’re just looking for quote, 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. Hey, thanks for joining me for another episode of racking up rentals. Show Notes for this episode can be found at www dot thoughtfull. Our e.com slash e 119. Please do us a big favor by hitting the subscribe button in your podcast app. It really helps fellow thoughtful real estate entrepreneurs to find this show. honored with today’s episode. So I was in a group for a while called Genius Network and Genius Network is kind of a mastermind of entrepreneurs not specific to real estate at all. And I was at one of their events. And they were talking about this concept called the Rembrandt in the attic. So Rembrandt, as you may or may not know, was a famous European painter from several 100 years ago. And so he had paintings, you know, and so they’re talking about the Rembrandt and the attic, meaning a Rembrandt painting in an attic. So here’s how the sort of metaphor of this ghost, they were talking about this concept in the context of buying another business, but the analogy they use, they said, let’s say you’re buying a house, and you see that this house is listed for $400,000. But you know, somehow you have a bit of knowledge that hidden in the rafters in the attic, in the most discreet place in this whole house, is a Rembrandt painting. Now, if you knew that that painting was there, how much would you be willing to pay for the house? And of course, the answer is they’d be willing to pay a lot more than the $400,000 for the house because there was an insanely valuable secret thing hidden in this house. So it’s really funny that they were using a real estate analogy to discuss the idea of buying a business. So I’m going to take this real estate analogy and keep making it a real estate analogy, because that’s what we do. So let me ask you about this, that what is a Rembrandt in the attic? In the context of what we do, it’s probably not literally a Rembrandt. And it’s probably not literally hidden in an attic. But if you knew there were a secret treasure hidden in this deal somewhere in this property somewhere. How much would you pay? Would you even have competition, there might be other people who would be interested in buying this property. But if they didn’t know about the hidden treasure, they would be not willing to pay much more than they thought it was worth. And you on the other hand, would be willing to pay whatever it took to get your hands on that secret treasure. So what what am I talking about with a secret treasure, I’m not literally talking about, you know, a chest of gold and jewelry and Jade and diamonds and things like that buried in the backyard, or something that just happens to be what at the end of the rainbow which is in the backyard of this property that we’re talking about? We are talking about a treasure in a different form. But it real estate investing is very much the same thing. You know, if you see something in a property, you see something in a deal. If you see something in a situation that somebody else does not see, then you have a major, major advantage, right? If you know that there is a hidden, valuable winning element of this deal that nobody else realizes then you can do whatever it takes to win that deal. Because that thing You’re buying is actually not what it looks like you’re buying, it looks like you’re just buying the property, but you’re actually buying the hidden treasure in the deal. So now I’ve spoken about this kind of general topic before. And I’ve referred to this as finding the delta. So finding the Delta means finding a delta delta, you know, is, is a difference, it’s a gap between two things, finding the Delta, between what you see and what the seller sees. And in many ways, the idea of the Rembrandt in the attic or finding the hidden treasure in a deal is very similar to the idea of finding the delta. So let’s talk about how it works. For most real estate investors, most real estate investors have a problem, they have a challenge that they face. And it’s like this, they look at 123 Main Street, and they see a house in a certain type of condition. And the seller looks at 123 Main Street, and they see a house in a certain type of condition. And there’s another buyer who’s interested in buying this property, and they look at 123 Main Street, and they see a house in a certain type of condition. So everybody’s looking at this property. And they’re seeing the same thing. The fact that they are all seeing the same thing is a major problem, because then nobody has any vision, it’s different than anybody else. So what does that mean? happens to the negotiation? Well, the negotiation becomes very dumbed down, it becomes very commoditized. Right now, the negotiation is now just about all the commodity sort of aspects of a real estate transaction, like the price, maybe the terms, maybe the type of financing, if it’s cash, and if it’ll close quickly, or any contingencies and lack thereof, because it’s a problem that everybody is looking at the property and seeing the same thing, the fact that there’s agreement on what they’re looking at, causes like a log jam, like a clog, there’s nothing to talk about, there’s nothing to look at except the price, the terms the contingencies, etc. Because everybody thinks that they’re looking at exactly the same thing. Let’s just take a different type of example, outside of real estate, you know, if if you find a 2021, Toyota Camry for sale, and you want to buy it, the person who’s selling it is thinking they’re selling you a 2021, Toyota Camry, another interested buyer thinks they’re buying a 2021 Toyota Camry, there’s no difference in vision. And so what’s the only thing you can really talk about, like, well, what is the price that I will pay more than the next guy, because that’s what I want this car more than the next person, so I’ll simply pay more for it. But there’s no difference in vision between all the parties about what this thing is. And so that means all we can really talk about is the price when you’re a buyer, as a real estate investor, you don’t want to find yourself in a position where all you can talk about is price, because now you’re just competing on the same terms as everybody else, you know, you’re you’re forced to play the same game that everybody else is playing. And that’s not how we, as thoughtful real estate entrepreneurs want to do things. But here’s the good news properties are not Toyota camrys properties are not commodities, there are no two properties that are exactly the same, literally 02 properties are exactly the same. And that is such a good thing for us, because why it opens the door. For vision, it opens the door for us to have the opportunity to see something different in a piece of real estate than somebody else. And when we see something different, that means we can have a different plan for that property. And when we have a different plan for that property, we can now make different types of proposals than the person who is not seeing our vision, or the seller who is not seeing our vision. Let me just give you a super, super simple example. In my market, we have a lot of old homes from the 20s and 30s and 40s. And they have basements and it’s very hit or miss in the neighborhoods whether the basements are finished or are not finished. So I might walk into a property and go down into the basement that the seller has never finished. And they don’t have really any idea that that basement could be finished in a way that would add tremendous value to the property right. So they’re asking let’s say they’re asking $350,000 for this house. And that price is based on the two levels of the house that are above ground and have very little to do with this basement area. But I walk in and I see this and I think, Oh my goodness, this is like another 800 square feet of finish space that I could add here, it could be another bedroom or two bedrooms and a bathroom could be a huge bonus room, I could do this for, you know, depending on what I’m going to put it there for 10 or $20,000. And it would increase the value of the house by 70, or $80,000. So there’s a Delta there between what I see and what they see, or I’m looking at their basement as a hidden treasure, they’re looking at their basement as just some storage space that is not really usable in another manner. But I’m looking at it saying I see a different level of potential here. So I can gladly pay them the $350,000 that they want. Because I’m not really buying a two storey house above ground, I’m actually buying a three story house in the future, with one story being that in in the basement. And so I’m seeing something different than they are seeing. And if another buyer was in this picture, they might not see the same potential as well, they might just think about renovating what’s above ground already. And so they might not be seeing the same thing as I do. But I’m seeing this basement as a hidden treasure. So let’s take a quick moment to just outline a few things that some of these hidden treasures could be, you know, it could be expandability, what we call expandability, which is basically the ability to transform something from what it is and to what it could be to make it more than it is right now. In the future to capture more potential, there’s a lot of different forms of expandability. That could be the treasures that could be the Rembrandt’s in the attic, so to speak. So one super simple example. So when I just gave you, you know, the ability to finish a basement that isn’t finished now, or it could literally be the ability to finish an attic, or something along those lines. It could be walking through a house and seeing that this house only has one bathroom. But I see this other place over here, that actually would be a perfectly common sense spot to add a second bathroom, which would now create a master suite in the house and how we go from a three bedroom, one bath to a three bedroom two bath with a master simply by spending maybe $15,000 to build that that second bathroom within the existing footprint. I’ve done that deal before myself. So I saw that hidden treasure in that the layout in the floorplan of this house that the sellers didn’t see and other potential buyers hadn’t seen. Maybe there’s a spot for an accessory dwelling unit on the property or in the existing footprint as it is you even the example I gave you with the finishable basement could be an accessory dwelling unit where now I can convert a house that was just creating one income stream into almost like a duplex that’s creating two income streams by building out this accessory dwelling unit. Or maybe I see a big spot in the backyard that would be perfect to build a freestanding separate, detached accessory dwelling unit. Maybe there have been some rules that have changed in terms of what is allowed with accessory dwelling units in the last few months. And I’m up on those rules. But other buyers might not be or the seller might not be they might not be aware of that there were ever provisions for that at all. But now the rules have changed and I see new potential that other people don’t see. Another very simple and relatable example for most of us would simply be rent levels. Maybe you walk into this property, the seller saying I rent this house for $1,000 a month. But I think it should rent for 11 $100 a month and you’re scratching your head quietly in your own mind saying oh my gosh, I think this can rent for 15 $100 a month if I just did a couple little things. That’s kind of a form of expandability a form of delta, a hidden treasure that not everybody else is seeing maybe this piece of dirt that the property is in the house that you’re buying is already on is dividable. Maybe there there are some historical lot lines that could be reestablished, that could now make this one lot into two lots where you can sell off the second one or build something separate on the second one. Or maybe the lots just simply big enough that with this zoning you could carve off a second lot or a flag lot where then now you’ve got two different buildable areas and one you could sell that would be a different type of treasure that not everybody would just obviously be able to tell but maybe you with your own expertise would be able to tell maybe there’s zoning that allows more maybe you’re buying a duplex on a piece of dirt that zoned for 10 units. That’s a tremendous amount of upside that could be captured. That is a hidden treasure or Rembrandt in the attic that not everybody’s going to see. Maybe there’s some form of strategic synergy you know with another property like for instance if you owned a duplex and the duplex next door to you comes up for sale and you buy it but you’re not just buying a second duplex, you’re really now creating like one contiguous larger property that maybe the zoning allows you to put more units on those two, because now you own both adjacent properties. Maybe now you create a common courtyard. And that creates some kind of a synergy, or whatever it might be. But here is the point. Here is the point, it serves you really well, to be able to see different things than other people see, right? If you are just seeing the same old stuff that any other buyer is going to see. If you’re seeing the same old stuff, the same old potential that any seller is going to see, you’re not going to have the ability to develop a new vision that’s going to allow you to really compete for these properties without competing on the dumbed down level of things like price, and terms, and this and that. But if you take the time, to develop the expertise that you need to be able to see different levels of possibility than other people, you study things like zoning, you study the rules in your area about accessory dwelling units, you study rents, and prices per square foot, and you study construction and you’re talking to your contractors and you understand how much it might cost and permitting fees to build that accessory dwelling unit, and how much the construction costs would be different. If you built an 800 800 square foot unit in a basement versus a freestanding structure and you have more of that type of knowledge, then you can start to see things that other people don’t see. And you might start to find that you are discovering that there are hidden treasures in deals that have been around you all along Rembrandt’s in the attic of the deals you’ve been looking at all along, you just didn’t have the perspective to be able to see them. So that is it for today’s episode of racking up rentals. Again Show Notes for this episode can be found at thoughtful our E comm slash e 119. Please do us a big favor by hitting that subscribe button in your podcast app and rate and review the show. We would so so so appreciate that I see every single one with my own eyes and I’m very very grateful for each one. Did you know that we have a Facebook group also for thoughtful real estate entrepreneurs. It’s called rental portfolio wealth builders and we would love to have you join us over there just go to group dot thoughtful ar e COMM And the magic of the internet will take you right to that page in Facebook and you can join the group. If you liked this episode, please take a second to screenshot it. And then post that screenshot to Instagram and tag us. We are at thoughtful real estate. So I’ll see you in 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 a win win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profits.