We all know that focus is important in real estate investing. After all, if we don’t know what we want to buy and invest in, anything is a potential candidate–and we can’t be evaluating every single property! So we work hard to define our buying criteria, sometimes called our “buy box.” But while most people define their buy box simply based on qualitative criteria—location, property type, size, price, etc.—Thoughtful Real Estate Entrepreneurs have an additional element they consider: Negotiation Dynamic. In this episode, Jeff explains what Negotiation Dynamic is, and why it’s so important to include in your buy box buying criteria.
Well, here’s one thing we know for sure, if every time an opportunity came to you, you decided on the fly from scratch by just making up your thoughts in that moment of what types of deals you do, what things you look for, what your criteria are, what’s within boundaries for you, and what’s out of bounds for you what you will do what you won’t do, if you make all that up from scratch in the moment, you’re gonna have a pretty random portfolio, you’re probably gonna make a lot of mistakes also, because you’ll never really develop any meaningful expertise in one area, and you will exhaust yourself trying to figure out every deal from scratch. So it’s super important that we have a framework that helps us decide what exactly we do, what we don’t do, what we’re willing to do, and what our criteria are. But there’s a normal way to approach that definition of what your criteria are. And then there’s also a more thoughtful way to modify that thought process to include a whole different type of consideration that most investors don’t think about at all. So let’s keep the theme song we’ll jump right into this 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 dealmakers, 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 126. Please do us a big favor by hitting the subscribe button and your podcast app it really helps fellow thoughtful real estate entrepreneurs who are searching for a show just like this to find it. honored with today’s episode now if you were listening to the racking up rental show here just a few episodes ago, you heard a really cool interview that I had the pleasure of doing with Michael Zuber, Michael’s Uber is a very successful real estate investor. And you might know him as the author of the book, one rental at a time. And so Michael and I talked about a lot of different things. But in our conversation, one thing that came up was the idea of a buy box. So what is it buy box a buy box is basically the box that you are willing to buy properties within. In other words, it is a set of criteria and standards and rules that you have set for yourself. So that you’ve defined in advance what it is you buy, so you know what you are looking for. And you don’t stray from those things. And it basically defines your niche, right? So if you’ve decided that your buy boxes is XY and Z and a broker or somebody else sends you something that’s not in that buy box, you don’t have to decide from scratch in that moment, do I look at stuff that’s outside my box or not? You have already defined what exactly that is. And so basically what you’ve said is that there are certain things that matter to you as important criteria in your investment decisions. And then there are things that don’t matter as much the things that you are flexible on right. So for instance, typical example of buybox criteria would say I buy properties in this particular town. Within that town, here are the neighborhoods that I am open to buying properties within I don’t buy properties anywhere in that town, but I open I buy properties in that particular neighborhood. I buy properties of this type, right so you might say I buy single family homes or I buy duplexes or three plexes or four plexes or something like that. You might say I buy properties that are normally about this size. say if it’s single family homes, maybe you say I don’t buy anything that’s less than 1000 square feet, and I’ll buy anything that’s more than 2200 square feet just as an example. Price you might say why don’t buy properties that are exactly that property type and size in this neighborhood of that town that are more than say $275,000. And so you have a criteria for price, etc. But there are other things that you might be more flexible on right, you might say it’s not primarily important to me. What type of heating the property has as long as it meets all my other buybox criteria. It could have gas forced air heating, it could have mini split systems that also provide air conditioning. So maybe you say that stuff is matters to me, but it doesn’t matter of primary importance. It might be a single level home, it might be a two storey home, it might have a basement, it might not have a basement, those things I care about, but I don’t care about them in terms of primary considerations, I’m not going to rule something out simply because it has, you know, forced air gas heating, for instance. So this is the concept of the buy box, it defines for you in advance, so you don’t have to make it up every time what exactly you are willing to buy and what you are not. And the word here, of course, is focus, it gives you tremendous focus. And I love this idea. And I agree 100% with it, and I have employed that throughout my investing career as well. But here’s the little twist, I want to throw your way in this episode. What if your buy box had other types of criteria that are a little bit different, right? So when we talk about town, and the neighborhood and the property type and the size and the price, these are pretty much points of data, right data points that would show up in a listing or tax assessor’s website or some things like that. But what if your buybox criteria had something that was a little bit more say qualitative than quantitative, maybe even a little bit more subjective in a certain sense. And one of the things that I like to focus on myself is what I would call negotiation dynamic. So what is negotiation dynamic? Well, negotiation dynamic is basically the type of negotiation that you’re going to have in the purchase or the pursuit of purchasing that property. Based on the way you come across this particular type of leads. So for instance, if you find a property that’s listed on the multiple listing service, that is going to have a certain type of negotiation dynamic, right, it’s the dynamic is going to be that you are not going to get to talk to the seller, in all likelihood, it’s going to be that the whole world knows that this property is for sale, you’re going to submit an offer, usually through a real estate agent who will submit that offer to another agent who will eventually present it to the seller, you will have to think about things like the contingencies in your offer, you’re probably going to feel a sense of competition and a sense of urgency. That’s one type of negotiation dynamic, Kate’s sort of removed your two or three people removed from the actual party on the other side. It’s about passing pieces of paper and PDFs back and forth with numbers on them. A totally different type of negotiation dynamic, just by total contrast would be what if you had a website that says we buy houses and someone submitted an inquiry on the website, and then they say, Yeah, I would like to sell my house quickly for cash. Here’s the address, here’s my phone number, the setup that creates is going to create an entirely different type of negotiation, right, you’re going to talk directly to that seller, there’s already been established the idea that this person needs to sell their house, they need to do it quickly, they perceive you as being a solution provider, professional investor, you perceive them as somebody who’s got a sense of urgency, maybe a little bit of distress. That is a completely different type of negotiation dynamic than the listed offer. But then let me give you a third example, which is much more about what I like to do and what I teach here, of course, which is, let’s say you have connected with the seller, because you sent them a bit of thoughtful direct mail, right? They’re an absentee owner, they do not have their property listed for sale, but you sent them a letter, they’ve called you back and you go and you sit on their couch in their living room, that is going to be a completely different type of negotiation dynamic, right? It’s not to say that one’s better or worse than the other. I certainly have my preferences, but they’re different. And that’s what’s really important the nature of the conversation you’re going to have sitting on that person’s couch who doesn’t need to sell their property is very different than the conversation you’re going to have over the phone with the person who submitted the We Buy Houses inquiry, which is going to be very different than the type of conversation you’re going to have when you submit an offer through a real estate agent on a listed property. So in other words, when we think about negotiation dynamic we’re kind of asking ourselves the question, What game do we want to play? Right each one is kind of like a different game. And we get to choose What game do we want to play? Do we want to play the competitive easy, you know, send your realtor an email game? Do we there has probably low probability chances of getting accepted but it’s very easy do we want to play the distressed seller game? The find out how much urgency and motivation is here and make a cash offer game or do we want to play the thoughtful ask questions Listen, look for seller financing opportunities game, and again, I can’t say that one is better than the other They are distinctly different. And if you know, the distinct differences between these things, you can also start to say, Hmm, which negotiation dynamic do I want, which one of my best suited for which 1am, I going to show up at my best in which one is going to display and harness the talents that I have as a person to best get a deal done, right. So once you know your negotiation dynamic that you want, you can work backwards from that by adding that negotiation dynamic to your buybox criteria. So let me just make this more literal, I’ll just tell you exactly how I apply this concept. In my own life. My buybox criteria would be probably defined as the following. I have a couple specific locations. Portland, Oregon, and even within Portland, Oregon, primarily, there are certain neighborhoods on the inner east side of town that I feel most comfortable with are some neighborhoods on the north part of town. But these are the older neighborhoods where homes are often you know, 75 to 100 years old. And the streets are a grid system. And I understand it, well, I know it like the back of my hand. Another area that I work in and actually spend a lot of my time living in is also a town called Bend, Oregon and bend oregon is about three hours from Portland, it’s more of a mountain town, certain parts of it have a little bit more of a suburban feel. But I’m comfortable. And I know that area and I pretty much am comfortable anywhere in any neighborhood more or less within Bend, Oregon. But those are my particular specific location criteria. Now how about the property type that I’m willing to buy within that specific sandbox? Maybe you’d call a location in those two spots. I’m actually very, very flexible on this. I’m happy to look at a single family home, I’m happy to look at a small multifamily property, I’m happy to look at a larger multifamily property. I’m happy to look at a neighborhood commercial building, I would distinguish neighborhood commercial as something in an infill type of scenario that’s right in a neighborhood as opposed to being a suburban kind of feeling strip mall or a commercial space or industrial things like that are not within my strike zone. But my buy box includes a wide variety of properties within those particular neighborhoods. How about prices, I’m totally flexible. And I feel like my price points have to be flexible within those criteria, because the type of properties I’m looking at, are very flexible. But here’s what I’m not flexible on at all, my negotiation dynamic is that I have to be talking directly to the seller, I literally don’t even look at listed properties, because that is the most important criteria in my whole plan in my whole program. And my whole approach is that I have to have the negotiation dynamic, where I am working directly with the seller, and that is my first and foremost primary criteria. So someone could send me a listing of a property that was exactly in the right neighborhood exactly the right type of property, let’s say it’s a duplex. And it’s well priced, I wouldn’t look at it because my negotiation dynamic criteria, which is a major part of my buybox definition, is not being met. So here’s the kind of the summary of that I will consider any well located property in my markets, as long as I’m talking directly to that seller. Why because the negotiation dynamic is the most important criteria. To me, I am willing to adjust and learn the nuances of say, for instance, neighborhood commercial space in this particular neighborhood or multifamily rental rates and what a two bedroom one bath apartment goes for in that neighborhood. If I don’t already know it like the back of my hand, I’m willing to figure that stuff out and make those adjustments. But I’m not willing to make an adjustment on the way that I buy the property, which is the way that I am negotiating to buy it. So in other words, you could definitely say I am shopping for a person to talk to you more than I’m shopping for a property to buy. I’m shopping for a person who has real estate I can talk to them about rather than shopping for a property and then trying to figure out the person after that. So here are the key takeaways and they’re simple that I hope you will leave this episode thinking about. Please, please, please make negotiation dynamic, at least a part of your thought process. As you define your buy box, start by asking yourself which negotiation dynamic do I want the most which 1am I going to be most successful in which one brings my greatest talents to the table and allows me to be my best self in those situations. And once you know that, put that as part of the criteria that defines your buy box. I’m not saying that you have To make it the number one most important thing like I have, but Step one is to at least decide what negotiation dynamic you want. And to make it part of your criteria of your thought process and then decide secondly, how you want to rank it right? I have ranked my negotiation dynamic has been direct to seller, as the number one most important thing in my buybox criteria, nothing else matters. If that part isn’t true. You don’t necessarily have to do it like that, you know, you might say, what’s most important to me is I buy duplexes in this one particular neighborhood price in this particular range. And I certainly prefer and prioritize the ones that I negotiate in XYZ, particular way, but whatever you do, at least factor it in because your buy box does not just need to be a set of data points and criteria that are searchable in a database they can be and should be qualitative and subjective things that reflected the way you want to buy properties, not just the type of properties themselves. And with that, that is it for today’s episode of racking up rental. So again, show notes here are going to be found at thoughtful our E comm slash e 126. Please do us a huge favor by hitting that subscribe button in your podcast app and take just a second to rate and review the show. Did you know that we have a Facebook group for thoughtful real estate entrepreneurs too. It’s called a rental portfolio wealth builders. And we would love to have you join us there the easiest way is just to type these words into your browser group dot thoughtful rt.com. And the magic of redirects on the internet will take you right to that page within Facebook. If you like this episode, please take a screenshot of this episode and post it to Instagram and you can tag us so that we know you did that at thoughtful real estate and I would really, really appreciate that. 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.