For many people, a growing real estate investment business means “scaling”—buying more properties, and doing a higher volume of deals. And that often leads investors to consider hiring an “Acquisitions Manager”—an employee whose sole job is the negotiate the purchase of properties, so that the investment company has enough “inventory” to repair, remodel and improve. For Thoughtful Real Estate Entrepreneurs, though, this is a huge mistake. In this episode, Jeff explains why TREES never hire Acquisitions Managers (Hint: it’s because that would mean outsourcing he most important part of the entire business: the negotiation with the Seller.)
For a lot of people, when they think about growing their portfolio or going full time as a real estate entrepreneur, they start to think, oh, you know what, we need more scale if we’re going to grow and do that, and what scale means is more volume. And what volume means is we need an acquisitions manager, somebody whose job is just to buy the properties so that we can do whatever we’re going to do to them. And in today’s episode, I want to tell you why I personally would never in a million years hire an acquisitions manager. And why if you’re a thoughtful real estate entrepreneur listening to this, then I wouldn’t recommend you do it either. So let’s keep the theme song 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, 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 a thoughtful ar e.com/e 135 Please do us a big favor by hitting that magic subscribe button or follow button in your podcast app really helps fellow thoughtful real estate entrepreneurs to find this show. And obviously make sure that you don’t miss any episodes coming up. Okay, onward with today’s episode. Now in the intro, I was explaining that for a lot of people their idea of growth means scale. And scale means more volume of deals, right? Because the more deals the better, right? Well, not not to me, we’re gonna kind of get into that. But they think more deals means they need a dedicated acquisitions manager, right? Because in any growing business, you can’t do everything yourself. Right? I would say that that is true. And you need to delegate some things. I would say that is true. And I agree with that. And let’s just be honest, when you get to that point where you start hiring people to do different things, it kind of makes you feel important. And we all like to feel important. So now we think to ourselves, oh, you know, this business is growing. I need to hire some people and delegate some things. So I’m going to hire an acquisitions manager. I think that is the totally flat out wrong thing to do. If you are a thoughtful real estate entrepreneur. Now, if you’re not, if you’re running more of a traditional real estate investing business, or more of a low brow approach, if you’re just trying to churn and burn a million wholesale deals and stuff like that, don’t listen to me that my advice is not meant for people like that. But if you are building a thoughtful portfolio through a relationship based acquisition strategy, I would never, ever, ever hire an acquisitions manager, I want to talk to you about why. And one of the words that comes to my mind when I think about this topic is inventory. Now a lot of people in the real estate investing world think of properties as inventory. And they think, okay, I need to get the inventory. Because I need to have something to do my magic on. Because doing my magic is where I make my money right now. Let’s just just use a little analogy, right, let’s say you make, I don’t know metal widgets, you make metal widgets. And so in order to make metal widgets, you have to get your hands on raw metal ingredients, so that you can bend them and cut them and shape them and form them into the little widget that ultimately, you sell. Right? So if you think of your widgets as the end product, and you think of the way you make money is all the melting and bending and folding and whatnot that you do to the metal. Then you see the metal that comes to your raw just as the inventory, right and you’re thinking yourself, I can’t do my magic. I can’t make the widgets if I don’t have the metal inventory to work with. And a lot of people especially folks who are maybe in the house flipping business, they see it kind of like that, right? They say I make money by money when I fix up a property, and when I make it available for sale again, at a higher price, because I added value to it, the properties are my inventory, and I need to get my hands on inventory, right? This is actually how wholesalers exist, because there are people like these home flippers who feel like they need inventory, right? It’s just like making widgets, and they need the ingredients to make widgets, and they’re thinking to themselves, you know, if I don’t have inventory, I can’t make money, because I make my money by converting my inventory into this thing that I make something of a higher value my widget, and I can’t make money if I don’t have inventory. So I need to have inventory. So they say, well, let’s hire an acquisitions manager. And acquisitions manager is just like the person who buys the supplies. It’s just like in the factory, it’s the person whose job is to buy the raw metal and get it to the factory so that the company can do what it does best, which is bended, and melted and folded, and all the stuff that it does to make its widgets, right. And so the real estate investor thinks the same thing, they say, You know what, I just need more inventory, I need somebody whose whole job is to get me the raw materials that I can work with, so that I can do my thing. And just like the person whose job it is to procure the metal in that factory, so that the factory can make its little widgets. The the person in charge of procurement of the metal doesn’t really care where they get it, they just need to get enough of it and get enough of it at the right price. And make sure it shows up at the right time. But they’ve got probably lots of different suppliers. And they’ll buy it from different supplier companies whenever they need it as long as they have enough of it at the right time. And at the right price, right, because if they have to overpay for it, it blows the margins of the widgets. But if they can get it for the right price, that’s all that matters. Well, the acquisitions manager kind of has the same mentality, right? They say, it doesn’t matter where I get the houses that we need as inventory. It doesn’t matter if I get it from a wholesaler, if I buy it on the market, if I just buy it off Market Street from a seller off, and we buy houses, bandit signs, it doesn’t matter. As long as I get enough of these inventory pieces houses at the right price at the right time, so that I can pass them on to the people who do the renovating. And they can do their magic, because that’s where the money is made, is in the renovation. Okay, so that’s the sort of normal frame of reference for a lot of real estate investors. But by contrast, to a thoughtful real estate entrepreneur, we think about this differently, surprise, surprise, right, we kind of think about everything differently. So trees think about this differently, and to a tree properties are not inventory. Inventory is a commodity, right. And like I just mentioned, inventory doesn’t really matter where it came from, as long as it’s procured at the right price, at the right timing, and that it’s simply available. Inventory is a commodity, but to us, the properties we buy are not commodities, the properties we buy are part of a cohesive collection, overall. And it’s what it really is, is not a collection of properties. It’s a collection of small businesses never stopped and thought about that. Each rental property you buy is a small business, right? It has its income stream, it has its overhead and expense levels, it has perhaps debt that needs to be serviced from the net operating income. There is long term asset value, and it produces a profit. At the end of the day. It’s basically a small business. And a small business is not inventory. So to us, each property is a small business. And it’s part of a carefully curated collection of these little small businesses that we’re building. We call that a portfolio. But a portfolio is really a carefully curated collection of small businesses that make up that portfolio. So here’s the point that I want you to take away from this. The negotiation for buying real estate is not just how we get our inventory, because we don’t see it as inventory at all. Now the regular investor who’s thinking in terms of inventory mindset, yeah, they’re just thinking the negotiation is what I do to get the inventory I need so that we have enough stuff to work on so we can create our widgets but to us, the negotiation is not that the negotiation it’s elf is what sets up our small business to succeed or not. In other words, if you’re taking notes right now write this down. The negotiation is part of the purchase. The negotiation is not what leads to the purchase. For us as thoughtful real estate entrepreneurs, the negotiation is part of what we are actually buying. So what does that mean? Okay, let me just give you a real example. Imagine there are two negotiations going on simultaneously. For identical properties, maybe these two identical properties are right next to each other. On the same street, both houses were built in exactly the same year. During the same condition, they’re obviously in the same location, they’ve got the same size lot, they’ve been renovated. At the same time, there are two virtually identical, interchangeable properties, okay. Now, the one on the left is being purchased as a piece of inventory by an inventory buyer or regular real estate investor who has an inventory mindset. And that buyer is focused on simply making sure they can acquire the inventory at the right price. And at the right time, because their job is to deliver this inventory into the factory so that something else can take place that the property can be renovated. So the inventory buyer is focused on getting the right price at the right time. The thoughtful real estate entrepreneur buyer, on the other hand, is focused on the whole negotiation to buy the property as well as the property itself. Both are separate things that the property itself has its inherent traits and attributes and benefits and opportunity and all that kind of stuff. But they the tree buyer is focused on making sure the negotiation that is part of the purchase is also excellent. What does that look like? Well, the thoughtful real estate entrepreneur buyer is focusing on tailoring this deal to better fit the sellers needs, while better fitting the thoughtful real estate entrepreneurs needs as well. What does that mean? Well, what it means is that the thoughtful real estate entrepreneur, entrepreneur knows that if they can truly solve the person and understand their seller, that they can negotiate the terms that are most important to the seller and get the seller to say yes, but while also negotiating the terms that are best for the thoughtful real estate entrepreneur themselves, which the seller might not place as high value on because they’re getting what they want out of their most important terms. So this thoughtful real estate entrepreneur buyer, let’s say she or he buys this property and negotiates to buy this property for the exact same price as the one next door that the inventory based normal real estate investor is buying, they’re going to buy the identical house at the exact same price. But they have also using their thoughtful approach negotiated seller financing terms, they have negotiated 10% down but only 5% of that down is needed at closing. The other 5% is due and payable to the seller in three months separate for the promissory note for the other 90% so that the buyer the tree buyer has effectively paid 5% down owes another 5% installment three months later, as 90% of the purchase price on a promissory note. They have negotiated that there will be a tiered and phased interest rate so that when interest begins accruing, it will start at 1% and go for three months and then it will go to 2% for three months, ultimately until it gets up to 4% at which point it will stay at 4% for the duration of the loan. But the thoughtful real estate entrepreneur has also negotiated that the interest will not begin crewing for the first three months because this property is needing renovation in order to get itself ready to generate income. And the seller understands that because the thoughtful real estate entrepreneur buyer has helped them see the light of that fact. And so now there will be zero interest for three months and then after that it will go to 1% for three minutes and then the 2% for three minutes etc. And they have also negotiated in their seller financing a substitution of security clause which means that when the thoughtful Real Estate entrepreneur buyer sells this property, they have the right to provide that seller with a different piece of collateral instead of paying off that loan. So here we are, we’ve got two identical homes on the same street right next to each other. The inventory buyer has brought an inventory mentality, and it says I just need to buy this thing at the right price and the right time. The thoughtful real estate entrepreneur, buyer, however, has brought a very different mindset, much more focused on the person as well as the property and has negotiated a package of terms that are actually part of what they’re buying, overall. So they’re buying the property, and they’re buying this package of terms. So the tree buyer, considered the negotiation, a huge part of what they’re buying, and now, they’re small business has a financing structure, thanks to their negotiation, that sets it up for better success than the inventory mentality type of buyer. Great. Let’s recap. This small business that is being bought by the thoughtful real estate entrepreneur buyer is set up better for success because this buyer has minimal cash out of pocket to close, they’ve got three more months to come up with the other 5% or 30 have the other 5% to preserve that other 5%. And they’re not going to be paying any interest for the first three months after closing. That means that they’re offsetting the fact that this property has no cash flow at all, at the start until they can get it fixed up and ready to re rent. Then they negotiated a tiered interest rate, which allows this buyer also to kind of preserve their cash flow and to ease into the new debt service that they have on this property. It gives them a little time to get the property leased up. And at full income generating capacity. They have the substitution of security clause, which means that when they go to sell this property, let’s say three years later, they might not have to pay off that loan. But instead they can keep that loan in their portfolio, so that they can sell the property and get the full proceeds of selling it without incurring the expense of paying off all the debt associated with the property which if you do the math there means that the seller, this thoughtful real estate entrepreneur is going to be getting a lot of cash at the closing of their property because they won’t have any debt to pay off at that time. The inventory buyer, meanwhile, was only focused on the property only focused on getting the inventory at the right price. They were oblivious to the seller what the sellers needs were what the seller would have said yes to if they had understood the seller, they didn’t even know that they didn’t know. They didn’t know what they didn’t know, they didn’t know that there was anything even else to ask the seller that could have resulted in customized terms that would have set this venture of this small business that is the property better up for success. So let’s bring it back. You know, I could have called this episode is a property a piece of inventory. But I started instead with saying here’s why I’ll never hire an acquisitions manager. So let’s go back to that point, let’s pivot back towards that. Here’s why I would never hire an acquisitions manager. Because that is delegating the most important part of the whole process, which is the negotiation, and as we’ve discussed, the negotiation is part of the acquisition, it’s not the path to the acquisition, it is actually part of the acquisition because it what’s included in that negotiation sets this deal up to succeed after closing or not succeed. You, as a listener of this podcast, as a student have a thoughtful approach as a student of the yeses framework and the idea of solving the person before you solve the deal. And studying the intricacies intricacies of seller financing. You can develop this skill of being an amazing negotiator, you can develop the experience, you can accumulate that experience and understand the nuances and the people skills required to negotiate the best possible deal. You can do that better than anybody else can. Now is it that nobody else could possibly learn to do that? No, of course not. Of course, other people could possibly learn to do that everybody listening to this podcast right now is in the process of learning to do that. But here’s the thing. Yes, others can learn to do this just as good as you can. But they’re not going to come and be your employees, because they’re going to use that skill to buy their own properties. So if you’re hiring somebody, to be your acquisitions manager, you are settling for somebody who will bring an inventory based mindset, and will not have the ability to negotiate the nuance of the deals that you possibly can yourself. If you don’t choose to refine your number one skill and keep it in on the list of stuff that you do, and that you’re in charge of, you will be leaving money on the table. If you outsource acquisitions to an acquisitions manager, you will be leaving money on the table because that person will not be able to see all of the possibility of the ways to make that deal better that you can, using your sophisticated and thoughtful real estate entrepreneur experience. The negotiation, my friends is part of the purchase. And it’s a huge part. And I beg you to not forget that the negotiation is not the path to the purchase. It is a huge part of the purchase. outsource the other stuff. If you need to outsource stuff, if you need to delegate stuff, that’s fine. Delegate the swing of hammers, other people can do that as well as you can. But don’t outsource the most important part. Keep that for yourself because it is the biggest determinant of your overall success, building this curated collection of beautiful small businesses that we call a portfolio of properties. That is it for today’s episode of racking up rental. So again, shownotes can be found at thoughtful our e.com/e 135 Please do us a big favor by hitting the subscribe button in your podcast app, and rating and reviewing the show. I’m so grateful. Every time I see a rating and a review and I see them all so please, if you wouldn’t mind, I would love to have you rate and review the show. Did you know that we have a Facebook group for thoughtful real estate entrepreneurs as well? We do. It’s called rental portfolio wealth builders. And we’d love to have you join us there. You can search rental portfolio wealth builders in Facebook. Or you could take the shortcut which is just to type group dot thoughtful rv.com into your browser. And we will redirect you right over there. If you liked this episode, please take a screenshot of it and post it to Instagram. That’d be awesome. and tag us in your posts. We are at thoughtful real estate. Alright, 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.